Homeowners have a considerable asset when they own a home. It has some financial pull as it can be used to secure other loans and financing. Generally, homeowners will carry one mortgage for its duration and pay it off in the timeframe set in the original financing contract.
However, there may be financial circumstances that arise that will have the homeowner contemplating refinancing their loan. While it can be an option, it should only be done as a last resort. Most financial experts would say you should not refinance your mortgage because it extends the time and often the loan cost. Here are six reasons you shouldn’t refinance your home.
A Small Loan Amount
With a very small loan amount, it can become very difficult to save enough money by refinancing to make this entire process worthwhile. For instance, if you refinance a $750,000 loan from 5.5% to 4%, it might yield a monthly savings of approximately $678. These savings for the $75,000 loan will only amount to approximately $68 each month. Apart from this, the lenders will often lack the additional fee or the interest rate premiums for a very small loan amount. Thus it becomes tough to obtain a rock bottom mortgage rate.
Small Rate Difference
Refinancing a large loan might result in substantial savings; however, getting a considerably better interest rate is very important over the long term as well. While it is possible to save a lot of money by refinancing to a slightly lower interest rate, it is a painfully slow and steady process. Considering the low mortgage rates we have today, shoot for an interest rate of at least 1% lower than the current rate to make both your time and effort worthwhile.
Short Time Frame
While refinancing at today’s low rates can sometimes translate to huge monthly savings on the mortgage bill, those savings do not usually come without considerable upfront costs. If you have only a few years before you are expected to move or refinance again, you may not want to have savings from a lower monthly rate.
Numerous ways are using which you could refinance and save some money alongside “no-cost” refinance plans even if you have a very short timeframe. However, all these options often come with complex interest rates, reducing all the various benefits considerably.
If you have already refinanced and reduced the loan term you have taken, you might be forced to obtain a longer-term loan when you refinance. Characteristically, the shortest fixed-rate mortgage term is ten years. If you have less than ten years remaining on your loan, the one way in which you can ensure the savings is to refinance the fixed term loans and then make payments to reserve the remaining term.
A Low Rate ARM
Federal Reserve policies have recently driven down short-term interest rates to unparalleled lows. As some of these short-term rates administer the interest rates for flexible rate mortgages, a number of the borrowers have of late seen their interest costs fall as the new rates have sunk to the 2%-3% range.
Refinancing to a fixed-rate loan today might help eliminate the interest rate risk with ARMs; nevertheless, this security comes at a very high cost and higher interest rates. Holding onto an ARM with a rock bottom interest rate, for the time being, may not be such a depraved idea.
Inertia and Hassle
Getting a new mortgage in today’s very tight lending climate is not fun nor easy. If your current lender does not offer a streamlined refinancing program, it may be a very time-consuming process. In addition, if the monthly savings are too small or the reimbursements take too long to materialize, refinancing costs may outweigh the reimbursements.
While refinancing your mortgage can be useful if a financial need arises that has no other financial solution, it is not a suggested solution. Most financial and lending experts would warn against it and recommend you consider other options and use refinancing as a last resort.About Complete Controller® – America’s Bookkeeping Experts Complete Controller is the Nation’s Leader in virtual bookkeeping, providing service to businesses and households alike. Utilizing Complete Controller’s technology, clients gain access to a cloud platform where their QuickBooks™️ file, critical financial documents, and back-office tools are hosted in an efficient SSO environment. Complete Controller’s team of certified US-based accounting professionals provide bookkeeping, record storage, performance reporting, and controller services including training, cash-flow management, budgeting and forecasting, process and controls advisement, and bill-pay. With flat-rate service plans, Complete Controller is the most cost-effective expert accounting solution for business, family-office, trusts, and households of any size or complexity.