Refinancing has definitely been the buzz this past year. Many families have had to take a look at their finances and make adjustments. Refinancing can be a good thing. It can mean reduced interest rates, reduced monthly payments or both. It is often a great way to consolidate and make your long term goals a reality. But, if you’re not careful in how you refinance, you could end up worse off then when you started, such as losing your home. Here are some key things to remember when considering refinancing:
- Don’t eliminate all of the equity you have build up to date. Your home is one of the most valuable investments you have. Make sure that you get a loan that lets you borrow against some and not all of your equity.
- Don’t use cash out financing. Cash out financing is when you take cash out of your loan amount to pay off debt. This however reduces the equity in your home, and in some cases eliminates it. Get a second mortgage instead.
- Don’t change from a fixed to a adjustable mortgage. Sure it might make sense now if the interest rates are low but as soon as they change, you might be in a position where you can’t afford the higher payments.
We have seen that low interest rates and a booming real estate market have led many to consider refinancing. But where has this got many of us in 2010? In debt and finding it hard to make ends meet. Be careful when you consider changing the status quo. Make sure you understand all implications of the decision before jumping in. It might just save your house.