When is Home Refinancing a Bad Idea?

With interest rates so low today, and a forecast that says they’re not going to stay that way for much longer, many homeowners are thinking that there’s no time like the present for home refinancing. And while home refinancing can be a huge help to homeowners and save them a bundle in the long-run, it can also be a nightmare that the homeowners will live through for years to come. So, when is refinancing going to hurt you more than it’s going to help?
It’s going to take you too long to break even
A home refinancing loan does have closing costs attached to it and you’ll need to know how long it’s going to take you to recover those expenses. To determine how long it’s going to take you and a mortgage broker can review both the closing costs, as well as your new interest rate. If the time frame is far too long, it means that you’re paying into something that will take awhile to pay itself off, if it ever does.
It’s going to cost too much in the long run
Any homeowner is going to be tempted by a home refinancing deal that lets them pay off the loan in half the time, offers a very low interest rate, or has much lower monthly payments. But be careful that you don’t focus solely on what’s going to happen this month or next. While it’s true that a current situation may be what’s making you look at home refinancing in the first place, also look at how the loan will be working for you in five years, or ten. You need to consider how the loan is going to affect your small picture and your big picture in order to determine if a home refinancing deal is going to benefit you.
When it’s the Wrong Type of Interest for You
Often the best home refinancing loans come with an adjustable rate mortgage. While ARMs are extremely popular because they benefit homeowners with enticing low interest rates, they’re not for everyone. People who have low credit scores or a low income may not be eligible for an ARM and so, if the best refinancing deal on the table is an ARM, it’s probably not the time for you to refinance.
The closing costs are going to be too high
You may be able to find some home refinancing loans that offer no-cost closing. However, what you won’t pay in closing costs you’ll often pay in higher interest rates. Find out if that’s the case and if so, figure out if you can afford to pay those higher rates. If you can, or if closing costs are part of your loan and you can afford them, a home refinancing loan could be a great idea that can save you a lot of money.