7 Wrong Reasons to Refinance Your NJ Real Estate Mortgage

When low mortgage rates are being advertised all over, it might seem like a good time to refinance your NJ real estate home

 

When mortgage rates drop you may be more likely to contact a lender and sign on for a mortgage refinance. However, before you begin this lengthy process, it helps to figure out exactly why you want to refinance in the first place. Although it can help with achieving some financial goals such as paying off your NJ real estate loan, there are bad reasons to want to refinance as well. If your reasoning happens to be one of the following, it might be smart to reconsider:

Debt Consolidation

Refinancing in order to consolidate your debt can be one of the most dangerous financial moves any homeowner can make. Even though paying off high-interest debt with a low-interest mortgage seems like a smart move there are some repercussions with doing this. Most importantly, you would be transforming unsecured debt, such as credit-card debt, into debt that is backed by your NJ real estate home. In the event you are unable to make those loan payments you can potentially lose your home. This is more serious when compared to missing payments on your credit card alone. Also, many people would be tempted to build up those big balances again once everything is paid off.

Saving For a Another NJ Real Estate Home

As an NJ real estate homeowner, you need to know how much a refinance will cost you compared to how much you stand to save each month. If it will take a few years to recoup the expenses of a refinance and you plan to relocate within the next few years, then you are really not saving any money.

Reducing Your Payments

On the surface, reducing your monthly payments by lowering your interest rate makes sense financially, but keep in mind the costs incurred with a refinance. Along with the closing costs and fees that range from 3% to 6% of your home loan, you will be making more mortgage payments if you extend your loan terms. For example, if you have been making payments for 6 years on a 30-year mortgage and refinance into a new 30-year loan, you will be making 6 extra years of loan payments in the end.

Moving to a Loan With a Longer Term

Although refinancing into a mortgage with a lower interest rate can save you money each month, make sure you look at the overall cost of the loan. If you have 10 years left to pay on your current loan and you extend the payments into a 30-year loan, you will pay more in interest to borrow that money and actually be responsible for 20 extra years of mortgage payments.

Taking Out Cash for Investments

The trouble with cash is that for most people, it is easy to spend. However, if you are disciplined and will really use the extra money for investment purposes, refinancing can be beneficial. Be sure you are an educated investor before risking the valuable equity in your NJ real estate home.

Switching From an Adjustable-Rate to a Fixed-Rate Loan

This can be an excellent option if you intend to stay in your NJ real estate home for years to come. However, if you only fear the negative connotation often associated with adjustable-rate loans, you should look carefully at the ARM terms prior to refinancing. Be sure you know what index the ARM is tied to, how often your loan adjusts and, even more important, your caps on the loan adjustments such as the annual and lifetime cap.

Doing a “No-Cost” Refinance

First, a "no-cost" mortgage loan does not exist. There are several ways to pay for closing costs and fees when refinancing but one way or another fees are always paid. Homeowners can either pay cash from their bank account for a refinance or they can “pad” the costs into their loan and increase the size of their principal. Or, your lender can pay the costs by charging a slightly higher interest rate.

 

The real estate market is changing rapidly and expanding into new avenues almost daily. Sometimes it can be very difficult to find the answers you need on a specific topic or issue. In times like these, you need a real estate professional who will provide valuable information and trustworthy advice. For more information on NJ real estate, call us today or click here to be connected with one of our top real estate specialists.