When mortgage payments begin to feel pressured the worry over foreclosure sets in and many people take action. While there are several options available to help relief mortgage debts, some people first choose to review mortgage refinancing options. Since interest rates have been at their lowest in decades, refinancing may prove beneficial to many. However, refinancing does come with some additional risks that should be considered beforehand.
Refinancing can be a great way for homeowners to lower their monthly mortgage payments before they ever miss a payment. Staying out of mortgage debt is the best way to prevent a foreclosure and keep the relationship with a lender amicable. Many people have been successful in securing lower interest rates that significantly reduced their mortgage payments, allowing them to stay in their home without financial pressure. Further, refinancing may be possible on second mortgages or investment properties, making it possible for many to take advantage of its benefits.
Perhaps the most unrecognized downside to refinancing is how it could affect the homeowners finances. Since refinancing a mortgage creates a new loan, the mortgage is then subject to closing costs. Many people are surprised to find out that they will owe out of pocket expenses when they attempt to refinance a mortgage. Further, the new loan also resets the term of the loan. This means that someone who previously had paid towards a previous 30 year loan for 10 years will lose that credit and have to restart from year one on a new 30 year loan term. Another issue to consider is qualifying for a refinanced loan. Although interest rates are low, many people have been denied due to strict credit requirements.