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Mortgage Refinance Pros & Cons  

Refinancing your mortgage is the fact of taking another home loan to pay off an existing mortgage on the home. The decision can be taken due to lower rate of interest in the market or due financial reasons – reduced income for instance. Regardless of the reasons, the buyer is looking for benefits. Therefore, it is important to first consider the balance between the amount of money saved on interest and the fees payable during refinancing.  

Having said that, before applying, you need to do your research on certain factors such as the types of mortgage refinancing you are qualified for, the closing costs involved and the risks involved in refinancing your home. Always keep in mind that mortgage refinancing has its pros and cons.  

Mortgage Refinance Pros 

You can get many benefits from mortgage refinance if you know what you are doing. The two biggest benefits of mortgage refinancing are having extra cash and a lowered monthly repayment. In addition, refinancing allows you to have lower rate of interest and an extended repayment period, although you can reduce the duration of repayment by making extra or higher payment. In short, when refinancing your mortgage, you have cash flow, and the rate of interest for home refinancing loan is not affected by the fluctuation of market equilibrium, condition in which the market price is established through competition. Although sounds good, this financial decision has its drawbacks.

Mortgage Refinance Cons

If you do not refinance for the right reasons and in the right time, you may pay dire consequences. In fact, the burden of mortgage refinance can be heavier than that of a normal home loan. A common disadvantage of refinancing your mortgage is the fact you (the borrower) may have to pay a penalty to the financial institution (the lender) that lent you the original home loan, before availing the home refinance facility. In addition, the refinancing remains in your credit history for a long period of time. It is often considered as a red flag by certain financial institutions - the credit card companies for instance.

As you may know, home refinancing is the best way to survive a financial crisis. However, do not ever refinance for futile reasons. Even if you have good reasons to do so, refinance at the right time. Finally, before refinancing your mortgage, it is very important that you evaluate your overall economic conditions.