Mortgage Refinancing: When Not To Take It
Posted on October 21, 2009 in the mortgage refinance category
Mortgage Refinancing: When Not To Take It
Whenever the rates are low, homeowners often ask this question: “Should I refinance?”
While low rates are often tempting and may be a good indication that mortgage refinancing is a good idea, that doesn’t mean it can apply to all. Strange as it may seem, a lot of homeowners will be better off sticking to their current loan and ignore the current low rates.
That said, there are certain situations when refinancing doesn’t make any sense. Let us take a look at those scenarios:
? When you don’t plan to live in your home for long
This is really something you should heavily consider. A lot of homeowners believe that refinancing is a good choice whenever the rates are low. The fact is, there are certain fees involved in mortgage refinancing that could only be recouped by staying in your property for a certain period of time (called the ‘break-even period”) ? which may take several years. Hence, if you think that you will be selling your house a few years from now, mortgage refinancing may not be for you.
? When the current market value of your property is low
Obviously, it makes no sense to refinance your mortgage if the amount of new loan is not sufficient enough to pay for the existing one. In the same manner, if the appraised value of your property is low, your monthly payment for the new loan may be higher than your current loan.
? When you are paying for your loan for several years
Say you are on the tenth or twentieth of payment on a 30-year loan. Refinancing it to another 30 years will only increase the overall cost of your loan.
? When you have a few years left on your loan
Even if you’re in dire need of cash, it not a good idea to refinance your home with only a few years left in it. Extending your payment terms will push you to pay more. For example, you have 5 years left on your mortgage and you apply of refinancing which will extend it to 10 more years (15 years loan), the total cost of the new loan will be more than what you should pay for the 5 remaining years even if the monthly payment are significantly lower.
? When you don’t know how to budget your cash well
It is a common strategy to use refinancing to pay for credit card bills. While this may be a wise choice for some, others who cannot manage their finances well may find it rewarding at first but very painful in the end. Not only will you place your house on the line, you are also placing you?re your whole financial standing at risk. (Take note: refinancing doesn’t erase your credit, you are just restructuring it.)
? When you have already used up all the equity of your home
One factor that will greatly influence the rates of your new loan is the amount of equity you have in your property. If you have already borrowed ninety percent of you more of your equity, chances are, you are just adding on your financial burden and not really benefiting from the advantages of refinancing.
? When you have a bad credit score
Aside from equity, your credit score is a significant measure whether you get a good rate or not. So if you have missed payments and pilled up credit card bills, you may not be qualified to a better rate.
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40 Responses to “Mortgage Refinancing: When Not To Take It”
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Well this makes me think that it is never a good idea to refinance, maybe you should do a post on why you should refinance…..
i totaly agree with you
thanks allot
Do you think will grow if the American dollar d ones of the year? And it ????? b interesting to know the forecast of the dollar.
The current prices of prices will go down more and more, some state are facing other wave of foreclosures, and in one way or another this will afect us. Government have to take an action to contain the crisis.
thanks this shared
You make some excellent points. I agree that before refinancing a home that the home owner needs to carefully consider all the options and how refinancing will affect them in the long term.
really nice hints!! thanks : )
It also depends if the value of the home went down. Refinancing might not be possible if the home is worth is less then the original loan.
mortgage refinancing is a big decission and takes a lot of wise thinking in doing it or we would just end up living in debt for a very long time. this is a nice guidance, thx.
You don’t want to do a refi if you can avoid it that being said sometimes it make perfect sense. If you are going to do a refi make sure you know all the cost upfront and how many years you will have to live in the home until you break even.
One factor that could counter the length-of-time negative factor is if you are refinancing to pull out some cash to make improvements with the intent of selling in the near future.
A $10,000 bathroom makeover could net a $15,000 profit on the sale. Of course, this kind of thing is rather speculative, so the risk of refinancing for improvements would need to be considered among all other factors as well.
Thanks for your guidelines. I will use this tips when I will Mortgage Refinancing.
With rates this low I can´t think of a reason not to finance a home. Keep the cash, now is a great time to invest in many areas and the cash you would have used to buy a home could be put to better use.
Yes, there are some factors to take into our consideration while financing mortgage, particularly if we have bad credit score. Thanks for sharing, mate
mortgage refinancing is a big decission and takes a lot of wise thinking in doing it or we would just end up living in debt for a very long time. this is a nice guidance, thx.
Totally agree with this.
Wow, great site you have there with lots of informative articles. Wish I have discovered it sooner.I will definitely add you to my bookmarks list. Thanks a lot.
refinancing mortgage is really a good idea with low rates,this is very attractive for all the lenders or all of them who want to refinance their home loans.
Hi,Nice Post.I think I refinanced 4 years ago for 15 yrs.Would I be better off refinancing for 30 yrs and paying more on my principal each month.
It has to take a decision while we came in a situation where we have to sell our house fast and facing mortgage issue!
I am also agree with you and thanks for sharing this post
If you have a fixed-rate mortgage and mortgage rates are falling, it only makes sense to consider trying to refinance at a lower rate. But as with most things in finance, it isn’t always a simple answer. Refinancing can certainly make sense, but it also costs money to refinance a mortgage. Depending on your specific situation, a refinance may actually end up costing you more money instead of saving money.
Whenever rates are low, refinancing tempts homeowners. Refinancing can make sense to lots of people who bought houses when rates were higher or who want to consolidate their bills.
Not everyone would benefit from refinancing, though. Some homeowners with second mortgages, a lot of debt or trouble paying bills on time might find that they would pay more by refinancing than by sticking with the loan they already have.
nice points!!! but i think the value should be also considered before refinancing….
Great advice, also refinancing is more risky now as the cost of borrowing will only increase.
You really should think before refinancing a home. With judgment think about all the choices.
Just wanted to say great job with the blog, today is my first visit here and I’ve enjoyed reading your posts
thanks for this article
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With that being said I would now be careful whether to apply for refinancing programs. Thanks for reminding me this.
thanks for your share, nice post !
Totally agree with you,A lot of homeowners believe that refinancing is a good choice whenever the rates are low but they should consider ‘break-even period”.Thanks for sharing such a useful article for us.
Hi, I think you have made some good points about when it is unuseful to refinance your home.
But I missed the part that talks about the time when it is useful to use mortgage refinancing.
You are also right about the time periods that you have to consider.
But, as John Keynes said long time ago, “in the long run we are all dead”.
Refinancing is really too risky…
The advises that you gave in the article are great.
Many will surely appreciate this.
This a very good info dude
Thank;s for share
And i will be wait netx yor tips
nice topic thanks for the share and yes i agree with muxman. It is all luck and wise mans work!
I agree with you
These are the points most of us overlook citing upon our present situation while looking for refinancing. I faced a similar situation and glad to come out from the quicksand.
Hi
thank you for good useful information.
Excelente post !!! really nice hints!! thanks : )
Hi, really nice tips are provided by you here. I’ll try to follow your suggestions. Keep up the good posts!
The value should be considered before refinancing.