Traversing the process of home ownership means that you will encounter various challenges. There is the issue of how much you can put towards a down payment, for instance. On the other hand, you may decide to look at another location altogether, when looking for a home. These aspects of the process require confident decision-making.
One of the most crucial areas to think about is refinancing a home. In times of economic strife, you may need to rethink the viability of your finances, with respect to your home. Should this be of a concern to you, refinancing may be a practical option.
To provide you with some clarity on the subject, here are eight pros and cons of refinancing a home:
Pro: Lower Interest Rates
There are both pros and cons of refinancing a home, but let’s start first with several advantages to refinancing. Depending on how precarious the market is, your interest rate will fluctuate. The range of this fluctuation can sometimes harm your personal circumstances, adding on to your incurred debt. If you are want to refinance a mortgage attached to your home, you may be in luck.
Lower interest rates are indeed possible, by securing a revised term on your loan. If you are in dire financial straits, having the ability to obtain this can be an immense benefit. You no longer have to worry about not making your payments on time, if they are now affordable.
Pro: Shorter Term
Many homeowners will choose to refinance a home for a lower rate of interest. However, rarely will you ever find an individual who prefers a longer term for their loan. With refinancing, it is possible to shorten the term attached to your borrowed loan. Typically, this can be reduced in half.
For example, if you are given a thirty-year loan, refinancing cuts it down to fifteen years. When this occurs, it’ll save you a lot of money that you would be paying on interest. Saving as much as you can on a loan puts you ahead of the curve, in terms of not racking up debt. This, in essence, is incredibly worthwhile!
Pro: Using Equity
Now that you have saved yourself some extra money, you can put that towards your home’s value. Many who choose to refinance their homes often reallocate the saved money to improvements. By investing into the structure of their home, its value inevitably increases.
Say, for instance, you want to resell your home at a future date. By refinancing it first, your saved money can help rebuild it through maintenance. Then, the equity you have established will amplify the home’s overall value in the market. Refinancing, therefore, can be a pretty useful strategy when it comes to real estate!
Pro: Less Monthly Payments
Monthly mortgage payments on your home can take a substantial bite out of your bank account. Through refinancing, your newer terms may allow you to make considerably less payments. For saving even more money on your end, it is an area that should be considered. That way, you won’t have to stress about being late on payments.
With every pro, inevitably comes a con. The same can be said for refinancing your home, and there are several potential disadvantages to know about. First, there is no guarantee that saving on interest rates is a lock. This comes down to the state of the market, and how much it varies.
Several conditions exist, in which the status of the market may not really save you money through refinancing. At best, you may be able to save some money on interest rates, depending on your mortgage. At worst, you probably won’t notice much of a difference at all.
Con: Additional Fees
Of course, refinancing will cost you when you choose to pursue it. When you discuss the subject with a requisite lender, it is important to get all pertinent details upfront. Always make sure that you evaluate your current budget, before going ahead with it. Sometimes, you might not need it at all, if it ends up costing you more.
Con: Takes Time
Refinancing your home takes a bit of time to process. Not only can it take more than a few weeks, but more resources and effort are needed. Think about how long this may take, and determine if it will impact your life negatively.
Con: Bank Regulations
When it comes to the topic of equity, some lenders may hamper your ability to pull equity out of your home. They may have a specific limit as to how much you are allowed to use. Don’t think of your home as an accessible source of cash, if this is the case.
Refinancing comes with several advantages, along with a few notable disadvantages. That is why it is important to think about your own circumstances, before pursuing it. Every situation will be unique; yours will be as well!