To help get their mortgage debt under control and truly enjoy their real estate property in Michigan, some homeowners may consider refinancing their home loan. Those who do should first research the ups and downs of the option in equal measure.
Money Crashers examines some of the common disadvantages of refinancing a home. Studying both sides of the refinancing equation helps those in debt reach a decision they are truly comfortable with.
Refinancing comes with a price tag
While refinancing could be a great way to lower a monthly mortgage payment, the option comes with an initial cost. Specifically, it is the closing costs that shock borrowers the most, which usually fall between 3 and 6% of the total loan amount. Additionally, refinancing comes with fees, such as application, title search and loan origination fees.
Current credit scores determine the new rate
Borrowers should improve their credit score and money habits in general to stand the best chance of getting a low rate after refinancing their mortgage. Just like with a regular mortgage, lenders put a borrower’s credit score and report under a microscope when deciding on a loan’s interest rate. Applicants could receive an outright denial or an interest rate higher than the one they currently have.
The ROI may not be worth it
Depending on closing costs and other fees, it may take longer than some borrowers like to see a return on their investment, notes SmartAsset. After running the numbers, it could make more sense to stick with a current mortgage and monthly payment.
Homeowners need to think about how long they plan on staying in their current home. Those who plan on staying put for several more years could stand to gain more from refinancing than someone looking to move in a few years.