What are some pros and cons to refinancing a house?

Question

I'm thinking about it but don't know if i should.

Answer 1

Pros:
- Lower interest rate
- Converting adjustable to fixed
- Extending the mortgage, if needed, to lower payments
- Reducing the number of payments
- Obtaining some low-interest cash from your equity

Cons:
- fees associated with the refinance
- temptation of cash-out (destroys home equity)

I have refinanced a couple of times, and both time I have benefited greatly. My advice would be to contact you bank's mortgage department, as well as a mortgage company, and have them "run the numbers." (Some people try to do this themselves, which is a guessing game at-best. The companies already know their fees, and they have spreadsheets that number-crunch quickly.) Compare their offers, and do the mental math. Look at what your new payment would be, and how long you would be making those payments.

Realize that most companies will roll any fees into the loan. Both times I have refinanced, I have had zero out-of-pocket.

Also - figure how long you plan to be in that house, and how much you would owe when you want to sell it. That might sound complicated, but it isn't.

Bottom-line: if you can cut the interest rate, keep fees low, and roll the fees into the mortgage, then refinancing makes a LOT of sense.

Most people don't realize how just a couple of percentage points can impact their payments.

Note: a previous answerer mentioned paying for an appraisal. The last time I refinanced, I used the holder of my existing mortgage, and they did not require an appraisal. So - make sure to involve your current mortgage company in the refinance - give them a chance to keep your business. They might be able to just update your application, and get it done quickly and cheaply.

Hope that helps.

Answer 2

Pros;
Refinancing is a very good way to get capital to finance expensive purchases like an automobile. If you have the discipline to not waste money, it gives you cash to pay for the purchase and you can then write off the interest on the mortgage all above board. You also have payments that are low and stretched over 20 or 30 years. It makes sense especially if you are getting a really nice car that you intend to keep for a very long time. I kept my Mercedes for 20 years.
In a sellers market where the price of houses is escalating rapidly you keep building equity. You can pick time when the interest rates are low to do the refinancing and you can also pick adjustable mortgages with low payments for 5 years which all help with the cash flow.
Cons:
In a market that is declining, you can end up with a home that is mortgaged almost as much as you can sell it for. This means that if you end up in a situation where you had to sell because of illness or loss of employment or a divorce you could be hurting really bad.
Cons:
If you did this to pay off credit car debt and just kept adding to the credit cards you'd just have a higher mortgage payment plus more CC debt.
You need to be disciplined in all case and work from a budget.

Answer 3

Pros: You might be able to get a lower interest rate. You might also have some equity built up that you could take as cash.

Cons: You might have to pay fees to refinance. You will be extending the loan. For instance, if you have paid on a 30 year loan for 5 years then you only have 25 years left. If you refinance with a new 30 year loan then you have 30 years to pay. Also, you pay mostly interest to begin with so you would be starting over, paying mostly interest again.

I would suggest you think about why you want to refinance. Talk to banks or mortgage companies and see what kind of interest rate you can get. I've heard it should be at least 1% less than you are paying now for it to be worth refinancing. Find out what the monthly payments would be and compare that to what you are paying now and find out if there are any fees to refinance. You'll probably have to have an appraisal, which you pay for. That could be $350 - $500 or so, depending on where you live. Find out if there are any points or origination fees. Once you have all of the information you should be able to decide if it will benefit you or not.

Answer 4

This is a really good question and one you ought to ask yourself regularly during your research period. The best advice I can give you is find your number one goal and stick to it. For example, are you mostly concerned with lowering your monthly expenses? Then focus on a long term loan that consolidates your high monthly credit card payments etc..this gives you a better payment per month. If you are thinking long term and want to pay off the debt earlier and pay less interest over the long term than abandon the idea of lowering your payment because chances are your monthly payment will actually increase (in most cases) but you will save a bucket of money in the end. Ive been in the industry a good while now and I have found most folks ought to focus on the short term. Decreasing monthly payments. Only an extremely small percentage of us actually stay In a house or a mortgage for more than 5-10 years, so any long term strategy doesn't help most of us.
This is NOT a solicitation per se, but I encourage you to contact me and I can show you how to avoid a lot of the games lenders play, and give you specific advice on your situation- No sales pressure or anything, just the good advice I'd wish someone would offer me if I were looking into something I wasn't an expert in.

Answer 5

Pros: lower interest rate, better terms.

Cons: Costs and fees. It could cost some people $4000 to refinance.

You have to look at the costs and how long you plan to stay at the house and how much per year you will save to determine whether its worth it.