Refinancing a mortgage is often done to save money, albeit risky. That’s why this article is dedicated to helping you avoid making financial mistakes by asking yourself these six questions.
Do I have the time to start the refinancing process?
This may sound illogical but it’s necessary. If you’re busy with work or have other obligations or responsibilities, it can be a good idea to wait until you ample time to deal with the loan. It is a common understanding that if you are tired or is busy, mistakes can happen. Missing a minute detail on the contract or fine print may prove to be a costly mistake.
Just like the first time you applied for a mortgage, reading, and understanding all the fine details of the loan, so is with refinancing.
Will I save money or not?
Most property owners believe that if they refinance, they are actually saving money. This is especially true in instances where interest rates are really low. However, it can be a bit risky since a number of situations may arise, causing your choice to refinance a costly mistake.
But then again, this doesn’t mean that refinancing is always a bad choice. What you can do is to make an educated guess. If you can afford the risk associated with the refinancing, then it’s safe to start considering the step.
Can I control myself to resist paying off other debts by refinancing?
Can you really do it? Can you control yourself from paying off other debts? Consolidating all debts into one major monthly payment with lower interests may sound appealing. But remember that banks are letting you refinance for profit. They will give you lower monthly amortization while extending your loan term. This results to you paying more even if the interest rate is low.
Will I qualify with the current interest rates I need?
More often than not, people gravitate towards refinancing whenever the interest rates are very low. This will usually allow you to save money in the long run. However, are you eligible to have the interest rates you want? As you may know, there are a lot of factors that affect the interest rate you can get. Your credit score, the type of loan you are refinancing – are some examples.
Hence the question you should be asking is, should you still continue with the refinancing if you don’t qualify for the rates being offered?
Am I willing to provide all the necessary documents needed for refinancing?
The lending standards of today are becoming tighter. If you were able to get a mortgage easily a few years ago you may surprise how strict the borrower requirements are as of today.Lenders are now requiring you to have a high credit rating as well as requiring you to provide full documentation of your current financial standing.
Can I make sure refinancing my home will not become bad debt?
If you’re not confident enough to deal with loan officers or make a sound decision when it comes to money, then refinancing may not be the best step to take. It is a risky step that will ultimately affect your financing situation as well as the equity of your home.
Indeed, mortgage refinancing is a great way to save money. But if not managed properly can become a situation where the only person getting all the good stuff is the loan officer. If your answer to all the questions listed above is “no”, then refinancing may not be a wise decision for you.