When You Should Not Refinance Your Mortgage
Mortgage refinancing can change the monthly payments owed on the loan either by changing the loan’s interest rate, or the term to maturity of the loan.
More favorable lending conditions may reduce overall borrowing costs. Refinancing can be used to improve overall cash flow.
Mortgage Refinancing may be undertaken to:
- reduce interest rate by refinancing at a lower rate
- extend the repayment time
- pay off other debts, high interest credit cards
- reduce monthly payment obligations (usually by a longer term)
- reduce risk, refinancing from a adjustable-rate to a fixed-rate loan
When you should not refinance.
There are benefits to refinancing by changing the terms in your favor. However, refinancing does not make sense in some situations.
Your home value has gone down. If your property value reduces and you refinance up to 80% of the new appraised value, your original mortgage amount may be higher than refi.
You do not have enough home equity. You used up 90%+ of your home value. As a result, you won’t be able to get the best rates available when you refinance a 90% LTV loan.
You have been paying off your current loan for years. Lenders set up mortgage payments schedule with principal and interest in an inverse relation. The starting payments are nearly all interest charges and little principal. If you are already 10+ years into 30-year maturity loan, it does not make sense, since you not only not benefit but lost the interest payments.
It’s no use refinancing the loan with a new term. You may need extra cash but with a new loan, you’ll end up paying more.
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