Since the onset of the current pandemic, the Federal Reserve has cut mortgage interest rates to historic lows. Millions of homeowners are taking advantage of this incredible opportunity to reduce the stress of the impending recession. Though it may sound like a great idea upfront, there are some refinancing drawbacks to be mindful of. Below you’ll find critical pros and cons to consider before committing to a mortgage refinance.
REFINANCING YOUR HOME: THE PROS
Given the current economic climate, you are likely to get a significantly better interest rate if you were to refinance your home right now. This could be highly beneficial for both your current and future finances. A refinance would help relieve the burden of excessive interest payments and improve your home’s market value relative to your current loan balance.
Remember that refinancing can also shorten the duration of your mortgage loan. For example, if you are currently bound to a 30-year payment period, you may have the opportunity to reduce that timeline to 15 years. Those who happen to have equity on their homes may get the best value out of refinancing by withdrawing the equity funds and stashing it for the future or immediate financial support. Though the potential benefits of refinancing are abundant, you should still consider the flaws.
CONS YOU SHOULD CONSIDER WHEN REFINANCING A MORTGAGE
Unfortunately, the process of refinancing a home is not always rosy. Many people may face logistical and financial challenges when attempting to do so. For example, refinancing can take anywhere from 15 to 45 days (or more!). Not everyone can dedicate such a large amount of time to a process that does not guarantee a desirable outcome.
Further, refinancing isn’t free. On average, it takes about $5,000 to complete this process, including fees for appraisal, credit reporting, tax service, underwriting, and more. This could cut into any savings you were hoping to accumulate and either leave your financial status unchanged or worse than before.
Before you commit to a refinance, consider your immediate financial needs and what you hope to accomplish with this choice. It would certainly be wonderful to take advantage of today’s low interest rates, but it is best to avoid doing so if it will introduce instability into your future financial stability.