hallfinancialcorp.com Cutting-Mortgage-Refinance-Fees
You can hardly watch a television program or listen to a radio broadcast these days without hearing an advertisement for mortgage refinancing for debt consolidation. On the surface, it sounds like a pretty good idea. Mortgage refinancing can net you a lower interest rate on your mortgage and, at the same time, get you the extra money you need to pay off credit cards and other forms of high-interest debt.
Refinancing can also simplify your finances. Instead of multiple payments to different creditors, you only have to worry about one payment to your mortgage lender.
Before you rush out and refinance, though, consider the following cautionary points.
Mortgage Refinancing Fees Are Expensive
You’ll be expected to pay closing costs when you refinance, just as you did when you initially took out your mortgage, and those closing costs can be steep, running the average consumer around $3000 to $5000 dollars. If you have a minimal amount charged on your credit cards, the refinancing will cost you more than you will save in interest payments. Talk to a financial advisor or use an online mortgage calculator to be sure you’re really getting the bargain you think you are.
Credit Card Debt is Unsecured
Unsecured debts are not backed by collateral. That means that if you fail to pay, the creditors can’t take any of your property away from you. They can trash your credit score, take you to court and get a judgment against you, and garnish your wages, but they can’t touch your home or your automobile.
A mortgage, on the other hand, is a secured debt. If you fail to make payments as promised, the lender can foreclose upon your home. Before you do a debt consolidation, take every precaution to ensure that you will be able to pay the refinanced mortgage. Otherwise, you risk losing your house.
You May Need to Pay Private Mortgage Insurance
If you refinance for more than 80% of the value of your home, you will be expected to carry private mortgage insurance or PMI. This insurance covers the lender if you default upon your home loan. To avoid having to carry PMI, you must have at least 20% equity in the property.
Make Sure Credit Card Balances Don’t Creep Back Up
All too often, borrowers refinance their mortgage to pay off their credit card debts. For a few months, everything works exactly as planned. Then an unexpected expense arises – a medical bill, perhaps, or a costly car repair. The borrower charges the expense to his or her credit card. Within a few months, the credit card balances are approaching the maximum again, and the borrower finds him or herself responsible for new credit card debts as well as a hefty mortgage payment.
This isn’t to say that refinancing never works. For some borrowers, it turns out to be an ideal solution. Don’t rush into refinancing, however, until you have carefully considered your financial situation and are sure it is the right choice for you.
About David Hall