Mortgage refinance means trading your old mortgage for a new one. That means, in a mortgage refinance, your lender pays off your old mortgage and replaces it with a new one. Most of the time, new mortgages have lower interest rates than the previous ones. In fact, most people opt for mortgage refinance to get lower interest rates and shorten payment terms. However, many people do not know some facts about mortgage refinance. Therefore, in the blog below we have listed 5 astonishing facts about mortgage refinancing.
Refinancing may cost you money
Many homeowners do not know about it when they first go for refinancing. You want to take advantage of low-interest rates. For this, you may actually have to pay thousands. Banks treat refinancing your home like a new purchase. Therefore, they may ask you to pay the appraisal and closing costs. Normally, closing costs are about 2% – 3% of the refinance amount.
Your taxable income may increase
While it is true that government allows homeowners to deduct mortgage interest on their taxes. Consequently, the homeowner’s taxable income decreases. However, mortgage refinancing to a lower interest rate may decrease this deduction of mortgage interest. While it depends on the interest rate and refinanced amount, it also has the potential to push a homeowner into a higher tax bracket. Therefore, before going for mortgage refinancing, it is advisable to consult with an experienced person or company in the field.
Be sure it is worth it.
As you know that mortgage refinancing costs thousands of dollars. Therefore, it is important that your investment does not go in vain. For example, if you are thinking of moving anytime soon, then mortgage refinancing is not worth your investment. It is true that you will get a reduced interest rate which consequently will reduce your mortgage payment. But in case of moving soon, your thousands of dollars will go in vain. Also, you will need to pay closing costs again at the time of selling your home.
Therefore in case, you may move soon, you should try to explore other options available in the market to reduce your interest rates.
You will need a credit check
Many people believe that mortgage refinancing does not need a credit check. But this is a myth. Before refinancing your mortgage, the lender is likely to check your current state of finances. This gives them a better idea about the risk that their investment may face. Therefore, borrowers that have a good credit profile get lower interest rates than other persons. Normally, a credit score above 750 is considered more than good for mortgage refinancing.
Therefore, do not believe this myth and always check your credit profile before heading for mortgage refinancing.
You can refinance your mortgage multiple times.
Most people do not know that they can refinance their mortgage multiple times. In fact, there is no limit to refinancing your mortgage. However, be sure that each refinance makes sense and does not end in a debt trap. It depends on lenders also. Many lenders look for a seasoning period that is a minimum amount of time before they approve another one. Therefore, always take the help of some financial institution or some professional before opting for mortgage refinancing.
Mortgage refinance is a good option to lower your interest rates and making your debt easier. Sometimes, it is useful for coming out of a debt trap also. Just like any other thing in the world, mortgage refinance has its negative effects. Therefore, it is better to take the help of some professionals before going for mortgage refinancing. Also, keep in mind all the above-mentioned points to get a better understanding of mortgage refinances.