Refinancing has become an enticing option for those with a high interest rate on their mortgage. So, how do you know if it is the right option for you? Well, here are some pros and cons of refinancing.
- You may be able to take advantage of lower interest rates
- You may be able to extend the repayment period of the mortgage. You will end up paying more in interest charges for this, but it will reduce your monthly outgoings.
- You may be able to switch from a variable rate mortgage to a fixed rate mortgage, possibly protecting yourself from future potential rate increases
- You may also be able to increase the amount of your mortgage, to pay off higher interest rate liabilities such as credit card debt, personal loan debt etc. This will enable you to save money on interest charges.
- If you choose to borrow more than your existing mortgage, you will need to pay close attention to your budget. If you default on your payments, you will run the risk of losing your house.
- If you improperly calculate the costs involved with refinancing, you could end up paying more in interest charges. [Thoroughly review the contract of your existing loan—an early payout could involve a penalty that could negate the benefits of refinancing].
As with any major financial decision, get as much information as possible so that you can make an informed decision.