Mortgage Refinancing Myths: Busted
With interest rates touching new lows, almost all mortgage holders are rushing for refinancing. But before you tie yourself to a new plan, read on to clarify some myths about mortgage refinancing.
Myth # 1: Refinancing Lowers Your Monthly Mortgage Costs
This myth has been doing rounds in many minds since interest rates reduced. However, there are many reasons behind refinancing mortgages, including changing the term of your loan, and the type of your loan. When a long term loan is converted to one with a shorter duration, monthly costs are almost always higher although a shorter maturity period for a mortgage or any loan saves on interest costs over the entire tenure. Similarly, the monthly costs on fixed vs. adjustable interest rates vary and payout is determined on a case to case basis.
Myth # 2: People Refinance for a Better Deal
Not always. Stemming from the above reasoning, there can be many factors behind refinancing a mortgage. To ensure that refinancing suits your needs, consider various possibilities and weigh the costs against the benefits. This is necessary in the scenario where you are unsure of the duration you want to remain in the house, since there are closing costs tied to refinancing. In case you intend to use the house for a short period, those costs may not be covered by the savings you expect to reap by refinancing.
Myth # 3: Refinancing is Easy Since I Already Have a Mortgage… Right?
Wrong. With recent events fuelled by subprime mortgages, lenders have grown increasingly cautious about lending money. New guidelines and restrictions have been placed to prevent defaults on all types of loans. While this obviously bodes well for the future economy, it may not be so favorable if you are looking to refinance your mortgage. Perhaps the only way it may be possible would be if there was ample equity invested in your home, which would help you to secure decent rates for refinancing. Again, this is also dependent on each case as it is bound to have some of its own unique characteristics.
Myth # 4: Fixed Rate Mortgages Are Always Better
This one is simply not true. The fact is that despite numerous experts’ predictions about the direction of the interest rates, there is no way to be certain. The world is so intertwined that it is impossible to know which event where will impact the economy and various macroeconomic factors. Hence, in order to decide between fixed and adjustable rates, understand the difference between them and consult your advisor. Generally, it is better for your assets and liabilities to be in sync – that is the class of income and expense should be the same.
Myth # 5: Refinancing Is Impossible After Bankruptcy
It may be harder and costlier to refinance your mortgage, and there might be a waiting period to fulfill, but the option of refinancing is not denied simply because you have suffered through financial hardship. Bankruptcy damages your credit report, and sure you may not be able to take advantage of prime rates, but as long as you are willing to take responsibility, mortgage refinancing remains an option.