Will Refinancing Always Lower my Mortgage Payments
Homeowners always look at refinancing a mortgage as a way to reduce their monthly payments. While this type of thinking is certainly an advantage, it is not always the case. Reality often steps in, circumventing what seemed like well-laid plans at the time. For several factors, which we will examine, refinancing is not always an option. Frequently, however, the homeowner has no choice, and is stuck with remortgaging, even when the payments are higher. Yet, there are times when having a higher payment is beneficial, as the immediate gains may be worthwhile. We we look at those scenarios as well. To summarize, if you ask us the question, "Will refinancing always lower my mortgage payments?", the answer is, "No it will not".
The first example that we should explore is taking equity out of a home, or what is more commonly known as cash-out refinancing. Often, homeowners realize that the answer to their dilemma is remortgaging. To be clear, the dilemmas are not always negative, such as overburdened with debt or some form of crisis. They can be nice things, such as buying a cottage or taking a special trip. Either way, if you have plenty of equity in your home, or at least enough to cover the amount of money that you seek, refinancing is going to be a good thing in the short term, since you will have the available cash in your hand, but, in the long-term, it does increase your monthly payments.
If you presently have a forty thousand dollar mortgage, and you want to take out thirty thousand dollars, then obviously your payments must increase. Your new mortgage would be seventy thousand dollars, and the lender wants the money back in a reasonable amount of time. The only way to do this is to increase the payments.
The next example that we will explore is when your term is up. In other words, you have a thirty year mortgage with a five-year term. It is now time to re-sign your mortgage whether you want to or not. This situation is not always advantageous because the interest rates may be considerably higher. In fact, your situation becomes the luck of the draw, so to speak. Whatever happens on the day of your refinance is going to impact your payments. So, if the interest rates are higher than on the day of your originally signing, you are going to make higher monthly payments on the new mortgage.
Further, this is the exact scenario that plagued thousands of homeowners who signed mortgages based solely on the promotions of low interest rates. They never counted on the exaggerated interest when it came time to renew. Sadly, many people lose their homes due to this gamble in remortgaging. They do not expect the huge increases in payments, and simply cannot afford the refinanced mortgages. Either way, whether it is just time for renewal, or the homeowner was "tricked" into a low interest rate, the results are the same. Refinancing does not always lower your monthly payments.
In actuality, the are many more examples of why it is not true that refinancing will always lower your mortgage payments. And each one has a legitimate explanation, meaning that the outcome is not always negatively perceived.