A new mortgage taken out to reduce monthly payments, take cash out of your home for great purposes or to change mortgage companies is known as refinancing. Like in everything in our day to day life, refinance mortgage also comes with a set of pros and cons.
Reducing the interest rate on the original mortgage is the main and foremost advantage of refinancing. Over the course of time as people get settled down in their work, their potential of making money goes up; thereby helping them pay their bills on time which leads to a higher credit score. With their credit score better than when they first took the mortgage, the opportunity of decreasing their interest rate is what makes people opt for refinance mortgages. A lower interest rate is simply a blessing in disguise as it saves you hundreds of dollars a year by lowering your monthly payments.
The second reason that people refinance is when they purchase some large item that costs a lot like a new car or to pay their credit card debts. The way this is done is by taking equity out of their home. Many people renovate their houses after they buy it; thereby increasing the resale value of the home.
The major drawback that you might face while refinancing your home is when you occur penalties as a result of paying down your existing mortgage. Mortgage companies can charge you a fee for doing this as written in your lease agreement; this fee will amount to thousands of dollars. Before you opt for refinancing your mortgage make sure it covers the penalty and is worth your while. There are also a few other additional fees that you need to be aware of before refinancing. These include the bank fees and the attorney fees.
It is always better to be safe than to be sorry. Make sure that you do a thorough analysis keeping all the pros and cons in mind before you settle for refinance mortgage.