Refinancing Not Always A Money Saver

Many people facing foreclosure are looking for a way to save their home and get out of mortgage debt. Mortgage loan modifications can provide relief from high monthly payments, but not all modifications are beneficial to everyone. Refinancing a mortgage is a common practice and can provide relief by lowering the interest rate on the loan. However, refinancing isn’t always the best choice and could cost you more in the end.

Hidden Fees

Many people are unaware of the additional costs associated with refinancing a mortgage. Since you are taking out a new loan when your refinance a mortgage, that loan is subject to the same appraisal and closing costs as the original loan. That usually means thousands of dollars in out of pocket expenses when closing on the refinanced mortgage loan. Many people simply cannot afford these expenses when already experiencing financial hardships and mortgage debt problems.

Schedule Setbacks

Refinancing also creates problems with your loan amortization schedule, which is the schedule of how your payments are divided between the interest rate and the principal amount of the loan. Typically, the first 15 years of a 30 year loan are spent paying primarily towards the interest rate and not the principal amount of the loan. Refinancing a mortgage resets the amortization schedule causing you to lose any progress you have made towards gaining a larger percentage of your payment going towards the principal. This means that you will spend another 15 years working towards repaying the newly refinanced interest rate and very little towards the principal amount of your loan.