It is not surprising that most homeowners are refinancing their mortgages in this era of economic uncertainty. After all, refinancing your mortgage gives you flexibility in your monthly payments. So, this can be an attractive offer.
Mortgage refinance comes with its benefits and drawbacks. That’s why you must consider them when negotiating with mortgage lenders. So here, we are gonna discuss the advantages and disadvantages of refinancing mortgages.
Advantages
Home Equity Line of Credit
Most homeowners choose to refinance their mortgage so that they can take advantage of a home equity line of credit. A HELOC is a second mortgage secured by your home that you can draw funds from as needed. Many local mortgage lenders will offer you to borrow up to 80% of the market value of your home.
Lower Interest Rate
This is the number one reason why the majority of people choose to refinance their mortgages. For instance, if you are currently paying 6% on your mortgage, but the current market average is 3.5%, it makes sense to refinance.
Lower Monthly Payments
Many homeowners refinance their mortgages just because they want to lower their monthly payments. Sometimes, this is due to a change in life circumstances.
Disadvantages
Losing Your Tax Breaks
The main disadvantage of refinancing your mortgage is losing many of your current tax breaks. For example, if you take out a loan to pay for your home and you have been paying the loan back diligently each month, you may be able to deduct the interest on your taxes.
Fees
Mortgage refinancing is not without costs. When you apply for lower interest rates, then closing fees are gonna be cheaper. However, if you are refinancing for a home equity line of credit or cash out, closing fees will be much higher.
Legal Issues
If you want to lower your monthly payments, you may apply to refinance your mortgage but before that, you have to prove that your current loan isn’t affordable. Otherwise, you have to face legal repercussions from your local mortgage lender.
In any circumstance, you will find refinancing a mortgage is beneficial but you should choose the best mortgage option wisely. If you wish to take a step further in refinancing a mortgage, contact Lone Star Financing to help you sort it out.