Tuesday, August 11, 2015

Can you really benefit from refinancing your home?

One of the big financial buzzwords these days is refinancing. It’s practically everywhere you look, from your local bank to the internet, and late-night television, too. It’s almost enough to make you start thinking you might need to refinance your home too. Should you? Although all these places would like you to do just that, It may not actually be a good idea for you. Depending on a variety of things that might be going on in your life, depending on your credit score, and your current payment, interest rate, and financing company, it may actually be a terrible idea. Read on to learn why that 1/10 of a point of interest savings may not be all its cracked up to be.

First, let’s talk about why all these companies are suddenly so willing to refinance you. Think of them as being on a fishing expedition. They throw out bait, see who bites, and then reel in what gets hooked. Particularly tasty catch include customers with good credit reputations, steady earnings, and homes that they’re likely to be attached to, and won’t want to foreclose on. Is that you? You just might be a big fish then. There’s a lot of money to be made in this field, after all, especially on customers who don’t default. There’s the host of fees that they’ll charge, the thousands of dollars in costs that are built into the refinanced loan, and the sticking point that you may not realize, the ability to quickly turn over your newly refinanced mortgage to a large bank in the shortest time possible.

All these factors contribute to mortgage companies’ profit margin, but is it to your benefit?  There’s some contrary advice going around about this. Some people say that you shouldn’t worry about it if you only have “X” number of months remaining to pay, while other advisors indicate that you should go for the refinance regardless of how much time you have left, because you’ll save just a little more money, and every cent is important.

Neither of these is particularly helpful, though, since you’ll run into situations wherein you just don’t see it as being cut-and-dried. Maybe you’re mid-way through your loan, and the interest rate you could get won’t be that much better, but there’s still that potential monthly savings that you’re interested in. If this is the case, and the monthly savings is less than about $50, then hold off. Sure, the interest rate might get bumped up in a few months, but you’re not really missing out on anything, even if you’re looking at some hard times. Consider keeping your existing loan, and pare away the $50 from somewhere else in your budget. 

Another aspect of the loan refinance business that was previously mentioned is the reselling of mortgages. All of the smaller mortgage refinance companies sell their mortgages. They just don’t hold them. Same goes for most credit card companies and even your local banks sometimes. Now, this may not be a bad thing, because your interest rate is going to remain the same as was negotiated by the selling company, but if you’ve had a bad experience with one company, and gotten out from under them, you could end up writing them a monthly check once again, whether you like it or not.

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