If you own your home, but think you can get a better mortgage loan than what you have now, you might want to refinance. After all, there are some advantages to this decision. But as with anything, there are also some drawbacks. Before you make a decision, learn the pros and cons of refinancing your house.
Pros of Refinancing Your Home
The following are some of the main reasons many homeowners refinance:
Get a Lower Interest Rate
One of the most popular times to refinance is when interest rates drop. You can save thousands of dollars over the life of the loan with a lower interest rate. If you're hoping to save as much as a few hundred dollars on your monthly payment, you should refinance.
Switch to a Different Type of Loan
When you refinance, you can change some big features of the loan. You can go from a 30-year loan to a 15-year loan to save money on interest over time, or this might be your chance to get out of an adjustable rate mortgage in favor of a fixed loan.
Get Access to Cash
Another reason you might be curious about the pros and cons of refinancing is you're hoping this move can put cash in your pocket, and it often can. If you have equity in your home and need access to it now, refinancing can help.
Cons of Refinancing Your Home
There may be a few downsides to refinancing, such as the following:
Paying Refinancing Costs
Refinancing costs money, since every lender has several fees they require homeowners to pay. Common expenses include the appraisal, application fee, inspection fee, loan origination fee, points and closing fees, to name a few. Expect all of this to add up to at least a few thousand dollars, which means you should ensure it makes financial sense to refinance.
Having to Qualify
Just like buying a house, refinancing requires you to qualify for the loan. This means you need to have good credit if you want access to the best rate. If your credit is not great, it makes sense to improve it before trying to refinance. Here are a few things that can affect your credit score.
Putting in Time and Effort
Refinancing a home is almost as complex as buying one. Not only do you have to qualify with your credit, but you also have to read and sign a lot of paperwork. You'll also need to communicate and meet with the people helping you refinance, so expect to put some time into the process.
Thinking about a home refinance? Here's some more information about what to consider before refinancing!