One of the main reasons to buy refinancing plan is the low interest rates and hence low monthly mortgage payment. With the interest rates going lower, many homeowners have been successfully able to get a good deal on the refinancing. However, there are certain risks of refinancing that you must worry about and hence this cannot always be a good option. There are hidden traps that you must save yourself from.
Here are some of the most common risks of refinancing:
When you refinance, the entire process has to go through the same cycle as in any loan approval process. So you need to start from the house appraisal, inspection, etc. and all these cost certain amount of money. This fees need to be paid by the borrower. Sometimes these fees are included in the entire refinance amount and so you may need to pay a bigger sum. Otherwise, you just need to pay higher loan rates. Regardless of whatever method you choose, there is a certain cost associated with refinancing and you, as a borrower need to bear these expenses.
When you are trying to repay your loan soon by refinancing, this way some lenders may charge you fine for closing your loans early. You may have to bear this additional cost in order to refinance. Early closing fee is something you must be watching out. Most of the lenders charge this fee. Even when you refinance to buy a new asset, you still need to go through other expenses and fines for this particular loan where you refinanced.
When you go for refinancing, you can extend your loan terms. You will start a completely new loan when you go for refinancing. Besides this, if you are just 3 years in your 30 year loan period, you will have 27 more years to go with a newer rate and hence you will need to stretch your loan period for another couple of years which in total increases more than 30 years in all. Also, in some cases, you may be trying to extend this loan period yourself, but if you do it, you will still be extending and committing for paying longer period of time which certainly means you will be paying more mortgage.
When you refinance, you will certainly have to pay more money for closing. The bank fees, application, and any other unnecessary charges are all included in the closing cost. Try to negotiate these expenses with your lender. If you agree to pay the closing costs along with the mortgage payments, then they might come back as burden when it comes to paying off your mortgage along with its interest.
States like California have given options to buyers by allowing some extra protection so you can be for sure get closer to the foreclosure and hence can’t do any pay back of the amount you owe. This way you can keep your banks from suing you during foreclosure. If your original mortgage plan had this protection, when you go for refinancing make sure to get the same level of protection too.