When Refinancing Is A Bad Idea
Many of the people that approach me for a refinance loan really don't need one. They ignore the big picture and look only at the short-term benefits refinancing provides. There is a break-even point that you must consider. Specifically, you must plan to remain in the home long enough to re-coup the costs of the refinance loan for it to make good sense.
Consolidating credit card debt can be a good idea but only if you change your spending habits to avoid running the balances back up again. Time and time again I see people fall back into their old habits and soon have both credit card debt and a higher balance mortgage. Worse, there is now less equity in their homes to try to bail themselves out again. This leaves the homeowner vulnerable to bankruptcy or foreclosure.
Another consideration is the time spent in your current mortgage loan. If you have paid your mortgage down to 15 - 20 years left does it really make sense to trade that in for a fresh 30 year term even at a lower interest rate? The longer you are in the loan the higher the total costs. You need to crunch the numbers or have a professional do it for you.
The biggest mistake I see is when a homeowner with damaged credit refinances to consolidate delinquent debt but fails to work on cleaning up their credit report after the loan closes. To get back into a good fixed rate loan this is a critical step in the process.
Refinancing can be a fantastic tool to save money in your overall financial picture when used properly. When refinancing goes wrong it can often be a shortcut to financial disaster.
-Bill Burniece
Many of the people that approach me for a refinance loan really don't need one. They ignore the big picture and look only at the short-term benefits refinancing provides. There is a break-even point that you must consider. Specifically, you must plan to remain in the home long enough to re-coup the costs of the refinance loan for it to make good sense.
Consolidating credit card debt can be a good idea but only if you change your spending habits to avoid running the balances back up again. Time and time again I see people fall back into their old habits and soon have both credit card debt and a higher balance mortgage. Worse, there is now less equity in their homes to try to bail themselves out again. This leaves the homeowner vulnerable to bankruptcy or foreclosure.
Another consideration is the time spent in your current mortgage loan. If you have paid your mortgage down to 15 - 20 years left does it really make sense to trade that in for a fresh 30 year term even at a lower interest rate? The longer you are in the loan the higher the total costs. You need to crunch the numbers or have a professional do it for you.
The biggest mistake I see is when a homeowner with damaged credit refinances to consolidate delinquent debt but fails to work on cleaning up their credit report after the loan closes. To get back into a good fixed rate loan this is a critical step in the process.
Refinancing can be a fantastic tool to save money in your overall financial picture when used properly. When refinancing goes wrong it can often be a shortcut to financial disaster.
-Bill Burniece
posted by Bill | 1:41 PM
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