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Although it may be difficult to digest, there are several situations when even the best mortgage rates turn out to be the worst financial thing. Consequently, what allures you spend wisely instead of saving, then what appears to be a great deal eventually turns out to be a devastating one.   

You may find that a home mortgage refinancing idea is a tempting one when you have enough money to make a big purchase. New furniture, luxury vehicles, RVs, expensive cruises, vacations, or boats are typical big purchases that households may use as illogical excuses to raise a mortgage when the interest rates are low. The issue with doing so is that such purchases instantly reduce in value with increasing debts, but your assets do not. Repeated cash-out refinancing ideas instead of building wealth simply to take advantage of low mortgage rates impacts your personal net worth negatively.

However, even when you avoid taking cash out, you can still go erroneous by refinancing. Households who frequently refinance hardly get rid of their debts within thirty years thus increasing the amortization period as well as bearing thousands more in interest. This ultimately drags their families into uncertain situations upon a job loss or significant illness.

Refinancing can certainly be wise – and potentially advantageous – to your monetary future. Sadly, there are various circumstances when it is an insane step.  

Refinancing for the Wrong Reasons

1.   Cash-Out Refinance

Borrowing money against the equity which has developed in your house since you last negotiated your mortgage is known as ‘cashing out’ and is bad for the following reasons:

  • Cashing-out refinance for new buyers
  • Serial refinancing with extra funds

2.   Refinancing with 30-Year Term

Although all homeowners do not opt to cash out when refinancing, some of them simply aim to borrow funds at a lower interest rate to mitigate their periodic mortgage costs. However, by reaching out for another 30-year term, the applicants can eventually miss out on potential interest savings.

Refinancing for Smart Reasons

Although refinancing to a reduced rate is financially sensible, sometimes obtaining the most appealing mortgage rate results in people borrowing more money for commodities they do not even need. Falling into the vicious cycle of repeat refinancing is significantly easy, resulting in an increased mortgage, bearing more interest overall, and dragging your mortgage-free date longer into the future. Consequently, before you sign the refinancing papers to prolong or increase your mortgage, always ask yourself the following essential questions:   

  • Why are you refinancing?
  • What will be the impact and use of adding extra money to the mortgage? As well as their consequences to your long-term financial goals?
  • How many years does refinancing add to the mortgage?
  • Do you hold a mortgage tinged with any pre-payment penalty? If so, how much?
  • What are the ending costs of refinancing including all set-up and application charges, legal fees and appraisal?
  • How long may it take you to recoup the mortgage refinance expenses? Will you stay in the same house for the minimum of that long duration?
  • Does my financial advisor and/or bookkeeper approve my step?

Understanding why, when, and how to refinance your house is critical in making a wise decision to elevate your financial status. 

1.   Cash-Out Refinance is Advantageous in Many Ways

Certain circumstances do permit refinancing with extra funds, especially when you reduce your total borrowing expenses and do not expand your amortization duration back up to the authentic fifteen or thirty-year term. Some households make the most of their finances to do renovation and improve their property’s value or enhance their education, increase their income, and obtain a better employment. Others make the most of refinancing to eventually increase their net value and decrease damaging credit card payments by combining heavy interest rate loans into a reduced interest mortgage rate. However, such activities can be significantly harmful as it turns an unsecured debt into secured with the help of your property. It implies that if you fail to pay it, you could lose your house.

2.   Refinance and the Mortgage Term

Obtaining a rate that lowers your periodic payment while being reduced enough to offset the refinancing costs is one very common logic to refinancing. The longer the amortization duration to pay off the debt, the more interest charges you pay with extra interest payments wiping out your savings made through a lower refinancing rate.

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About Complete Controller® – America’s Bookkeeping Experts Complete Controller is the Nation’s Leader in virtual accounting, providing services to businesses and households alike. Utilizing Complete Controller’s technology, clients gain access to a cloud-hosted desktop where their entire team and tax accountant may access the QuickBooks file and critical financial documents in an efficient and secure environment. Complete Controller’s team of  US based accounting professionals are certified QuickBooksTMProAdvisor’s providing bookkeeping and controller services including training, full or partial-service bookkeeping, cash-flow management, budgeting and forecasting, vendor and receivables management, process and controls advisement, and customized reporting. Offering flat rate pricing, Complete Controller is the most cost effective expert accounting solution for business, family office, trusts, and households of any size or complexity.

 

Red refinancing stamp in torn dollar hole
Millions and millions of homeowners today have refinanced their mortgages and some of them are even considering refinancing it a second time. However, even though these rates are hitting a rock bottom low, refinancing is not the correct option to choose for every homeowner. Following are the six reasons why you should definitely opt out of refinancing.

  1. A Very 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 you the monthly savings of approximately $678. However, savings for a $75,000 loan will only amount to approximately $68 each month. Apart from this, lenders will often lack the additional fee or interest rate premiums for a small loan amount, thus it becomes very difficult to obtain a rock bottom mortgage rate.

  1. Small Rate Difference

Refinancing a large loan might result in noteworthy 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. Taking into account the low mortgage rates we have today, shoot for an interest rate of at least 1% lower than your current rate to make both your time and effort worthwhile. 

  1. Short Time Frame

While refinancing at today’s low rates can sometimes translate into huge monthly savings on the mortgage bill, those savings do not usually come without noteworthy upfront costs. If you have only a few years before you are expected to move or simply refinance again, you may not want reap the benefits of saving from a lower monthly rate. There are numerous ways in which you could refinance and save some money alongside with “no cost” refinance plans even if you have a very short time frame. However, all of these options often come with complex interest rates, reducing all of the various benefits considerably.

  1. Term Extension

If you have already refinanced and reduced the term of the loan 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 savings is to refinance the fixed term loans and then make payments to reserve the remaining term.

  1. 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 adaptable 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 in eliminating the interest rate risk that comes 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.

  1. Inertia and Hassle

Getting a fresh 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, the costs of refinancing may outweigh the reimbursements.

Check out America's Best Bookkeepers
About Complete Controller® – America’s Bookkeeping Experts Complete Controller is the Nation’s Leader in virtual accounting, providing services to businesses and households alike. Utilizing Complete Controller’s technology, clients gain access to a cloud-hosted desktop where their entire team and tax accountant may access the QuickBooks file and critical financial documents in an efficient and secure environment. Complete Controller’s team of  US based accounting professionals are certified QuickBooksTMProAdvisor’s providing bookkeeping and controller services including training, full or partial-service bookkeeping, cash-flow management, budgeting and forecasting, vendor and receivables management, process and controls advisement, and customized reporting. Offering flat rate pricing, Complete Controller is the most cost effective expert accounting solution for business, family office, trusts, and households of any size or complexity.

Refinancing - Complete Controller

Are you seeking ways to lower your monthly home mortgage payments, turn your real estate equity into a monetary asset, obtain a reduced interest rate, or switch to a full fixed-rate debt? If any of these situations define you, it is a good idea to consider refinancing your home mortgage loan.

However, before you refinance, it is imperative to comprehend how it performs and assess the advantages and disadvantages of your specific circumstances. For instance, the documentation requirements to obtain approval and the lack of awareness regarding refinancing options are the things that surprise many homeowners. Check out America's Best Bookkeepers

Consequently, knowing the fundamentals of home refinancing and how it helps achieve your financial goals will undoubtedly assist you in determining what mortgage option will be more beneficial for your situation.

What Is Refinancing?

Typically, refinancing is defined as the process of substituting a present mortgage with new debt. Individuals refinance their mortgage usually to lower their monthly payments, reduce their interest charges, or eventually alter their entire debt program from an adjustable-rate house loan to fixed-rate debt. Some homeowners require easy access to their money to pay off different loans or finance house renovation projects and take advantage of the equity from their home to get a cash-out to refinance.

Irrespective of financial goals, the eventual refinancing method works largely in a similar manner as when one applies for their initial mortgage. Therefore, you will have to set aside some time to do the necessary research on your mortgage options, gather the right financial and other essential documents, and promptly send a house mortgage refinancing application to get the approval. Check out America's Best Bookkeepers

Advantages of Refinancing

There are plenty of potential benefits to refinancing your home mortgage, which is included below:

  • Reduce monthly payments: Studies suggest that refinancing may enable an average property owner to save about $160 or more per month. Lower monthly payments allow you to use the savings freely towards other expenditures and loans or the monthly mortgage payments to pay off the loan sooner.
  • Lower the time-period of debt: A thirty-year mortgage may be the most sensible financial decision for property owners who took a housing debt in the initial stages of their professional life. However, lowering the mortgage term can be a good choice for those who aim to pay off their debt sooner.
  • Retire home mortgage insurance: For homeowners who hold enough principal paid off or property, appreciation will not be necessary to bear mortgage insurance that will lower their overall monthly payment. Check out America's Best Bookkeepers
  • Reduce interest charges: Refinancing to a reduced fixed interest rate can certainly decrease your monthly debt payment amount.
  • Switching from a previous adjustable-rate mortgage to a new fixed-rate mortgage: When you have an adjustable-rate house loan, you can adjust your payment up or down with interest rates. Switching towards a fixed-rate mortgage with regular and reliable monthly payments can render property owners the sense of realization that their payments won’t change.
  • Utilizing the equity available in your house to obtain a cash-out refinance debt: You may have enough capital, with rising house values, to get a cash-out to refinance loan that you can use to finance your home improvements, fund large purchases, or pay off loans.
  • Consolidating your initial mortgage and your credit’s home equity line: You can easily simplify your finances and focus on one mortgage by rolling your credit’s home equity line into just one monthly payment.

If you hold a debt backed by the VA, USDA, or FHA, you can benefit from several streamlined refinance programs. Such programs offer a well-simplified approval process by eliminating or lowering several of the credit, income, or appraisal reviews, all included in universal refinance programs. It is imperative to mention here that streamlined refinance mortgages may not offer the ability to cash-out. Also, such mortgages may increase your total cost, like any other refinancing options, over the term of the debt. Even when you have not been able to refinance, mortgage programs and interest rates are always changing. Taking expert advice is beneficial in these matters.

Check out America's Best Bookkeepers 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-hosted desktop where their entire team and tax accountant may access the QuickBooks™️ file, critical financial documents, and back-office tools in an efficient and secure 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. Check out America's Best Bookkeepers