With the current uncertain economic times, mortgage refinancing can help you save a lot of money. At the same time, it can complicate things, especially if you don’t meet the requirements, including having a low credit score. Before you qualify for the mortgage loan, a lender will first assess the market value of your current home, check your tax returns and credit history. Home refinancing has its advantages and disadvantages, as explained below:
Advantages of Home Refinancing
a. You’ll Get Low Monthly Payments
You can refinance your home loan to extend its payment duration. This means that your monthly payments will be spread over a longer period. This will lower your monthly payments. If you’re lucky to get the best refinance rates in Arizona, the payments will be reduced further.
b. You’ll Pay Low Interest
If you want to refinance your home and get a shorter duration, you’ll get lower refinance mortgage rates Arizona. This means that you’ll save on the interest you’d have paid on the initial loan duration. The amount you’ll save in this case will be significant, taking into account that mortgages usually involve huge amounts of money.
c. You’ll Pay Off Your Mortgage Faster
One main reason people consider home refinancing is to shorten the mortgage duration. Shortening the duration will make you pay off your mortgage loan faster. This will also make it easier for your home to gain equity quickly. After you pay off your mortgage, your income will be back to normal since you’ll no longer be making payments.
d. It’s Easier to Cover Other Expenses
Refinancing your home will also help you get resources to consolidate your debts, purchase assets or make home renovations. This will be possible depending on the value of your home’s equity.
1. Increased Monthly Payments
If you refinance your home to shorten the duration, you should be ready for an increase in your monthly payments. This can stretch your budget further and even make you find alternative income sources to cater to your basic needs and bills.
2. High Closing Costs
Home refinancing will come at a cost. There are various costs, including appraisal fees, application fees, survey fees, attorney fees, etc., which can be costly. On average, you should be ready to part ways with approximately $5,000 if you’ve decided to refinance your home.
3. Reduces Home Equity
You can refinance your home to borrow money from your home’s equity to buy a second property. In this case, you’ll be reducing the equity in your property.
4. Increased Risk of Losing Income
If you refinance your home without making proper calculations, you’ll be at a higher risk of losing your monthly income. If you’re struggling financially, your situation will even become worse if you refinance your home.
In conclusion, these are some of the advantages and disadvantages of home refinancing. You can weigh between them and make a sound decision that’ll favor your situation.