Home Refinancing Pros and Cons by Jennifer Quilter

Every refinance is different because of the many ways you can use this financial strategy. Due to this fact, every case has its own pros and cons list, but look at a list of possibilities that may apply to your individual home refinancing pros and cons list.

Pros of Home Refinancing

-Lower interest rates! If you've improved your credit score and rates are low you may be able to lower your interest. Two percent is a great goal and will greatly reduce the overall amount you pay on your loan.

-Lower monthly payments. This will raise the total amount you pay on your loan overall by extending the life of your loan, but if your monthly budget is currently unmanageable this may be a great benefit for you.

-Switch to a fixed interest rate. If you are having problems with an adjustable interest rate this is a solution

-Pay off high interest debt or fund home improvement projects. Other than the obvious benefits, your home payments are tax deductible, unlike other payments you could make for these situations.

Cons of Home Refinancing

-The upfront costs are the biggest con. You need to pay all closing costs on your current loan along with any prepayment penalties. You also have to pay for all the things you did when opening your original mortgage like appraisal fees, title insurance, etc.

-If you do not properly calculate upfront costs versus any money you expect to save you could end up losing money.

-It typically takes three years to realize true profits

-If you are borrowing more money to fund other things and do not make timely payments you risk losing your home.

In conclusion, all of this really comes down to numbers. Will it save you money or cost you money? Get out your calculator and find out! The home refinancing pros and cons really come down to what will be best for your budget.

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Still have questions? Check out How Does Refinancing Work? for more information, including the article Explain Refinancing a Home.