Homeowners choose to refinance their mortgage loans for various reasons. Sometimes, a refinance can be financially rewarding... other times, paying all the associated fees can set you back. It's important to assess your own situation to see how much it can truly benefit. So what are the pros and cons of refinancing a mortgage?
Refinancing allows you to:
- Capitalize on your home's equity
- Take advantage of lower interest rates
- Shorten the term of the loan. You could refinance from a 30-year term to a 15-year term, for instance.
This frees up money (either in the monthly payment or in one large chunk) to consolidate debt, renovate, or make some other large purchase.
When refinancing a mortgage, the cost ranges from 3%-6% of the loan amount. For example, if you decided to refinance a mortgage of $200,000, you could pay up to $12,000 just to do so.
Refinancing could also re-start your mortgage term. Let's say your original mortgage was a 30-year fixed loan for $200,000. Ten years later you decide to refinance with another 30-year fixed. In the end, you will have taken 40 years to pay off your loan.
Have you ever refinanced a mortgage? Comment below if you feel it was worth it.