Refinancing Pros & Cons

There are pros & cons to refinancing your home. It may not be the best choice for everyone, depending on their unique situation.

Pros

*  Lower interest rate: When refinancing at a lower rate, monthly payment decreases, and you’ll pay less over your mortgage life.

*  Changing the term of your mortgage: When you refinance, you essentially take out a brand new mortgage. This allows you to set new terms, meaning you can either lengthen or shorten the term.

*  Cashing out on home equity: If your home is worth more than the remaining mortgage, you may be able to do a cash-out refinancing.

Cons

*  Refinancing costs: There can be a lot of expenses involved in refinancing your home. Calculate whether the savings from a lower interest rate will balance out the fees.

*  Prepayment penalties: Some lenders charge a penalty for paying off a loan early. Determine if any penalties apply and what they are, as that may add to refinancing costs.

*  Refinancing restarts amortization: In the early years of a loan, you pay more on interest and less on principal. In later years, you pay more on principal and less on interest. Refinancing may set you back to paying more interest.