Home refinancing pros and cons
Home refinancing can be a good financial strategy, especially if mortgage interest rates are low. This is easy to understand why an interest rate pledge: a monthly payment lower than a certain amount.
But before anyone decides to refinance, which actually can see the advantages and disadvantages and, more importantly, whether the refinancing of the work to his advantage in his particular case. This is because it is impossible to make a blanket statement about refinancing, is rather a good thing or not, because the situation is any different.
In this article we are looking good and its bad sides of the refinancing. We will make sure to consider a case where a family has to refinance, and see how it worked for them.
To refinance A Case Study
About 10 years ago, a family in the North-East has bought a modest house for $ 175,000. They made a deposit of 20%, which amounts to $ 35,000. This means that a loan of $ 140,000 has taken over for 30 years and has a good interest rate for the time it was discovered 7th 5%.
This made their monthly payment before taxes and insurance included in the House, 978th $ 90. They had no difficulty in their monthly payments on time. But as so often because the families that accumulated in the last 10 years, credit card debt of 20,000 U.S. dollars.
The average interest rate on these cards was 22nd 9%. I know it's ridiculous, but it is with a credit card. Did they want to pay these credit cards in full at this rate in 10 years, they should have a monthly payment of $ 425th 72. If, however, have decided that it should only continue to apply only the minimum payment every month, they would never pay off the cards.
As you know, is never the credit card debt goes away, continue to get higher. So now we go ourselves until early 2008, when this family has seen the interest rates have declined by 5th 5%. Better yet, there are similar homes in neighborhoods to sell them for $ 250,000 and higher. Then you try to refinance, and that is what they find.
They would simply qualify for a mortgage of $ 200,000 because her house was estimated at more than $ 240,000 with no problems. This means that an amount of less than 80% of the value of loan assets. Moreover, by making a decent credit history to qualify for the best price 5th 5%. This is an important point, because people with bad credit pay higher interest rates.
The new mortgage
The family decides on a loan of 30 years to 5. 5% to $ 200,000 and their monthly payment is $ 1135th 58. At the closing, which receive a grant of $ 52,000. Here's how it works.
After paying their old mortgage for 10 years, had paid $ 19,000 principal. This means that still owed $ 121,000 for the house. This was, of course, pay $ 200,000 to. Moreover, their owners had stated that her credit card at the time of closing. This is normal. Well, that's another $ 20,000 was from his $ 200,000.
In addition, the closure was the cost, which contain the points of $ 7000th Sun had used $ 121.000, $ 7,000 and $ 20,000, which he with $ 52,000, and credit card debt to zero.
Here's how the monthly payment processed. With their old mortgage, you pay $ 978th 90, plus another $ 425 for credit cards. Thus, even if their mortgage payment is now $ 160 higher per month because they do not pay more for credit card payments, your monthly commitment is about $ 265 less.
How it works for the family
This is a refinancing has worked very well. The disadvantages are that they will be paying a mortgage for another 10 years because he already paid for 10 years and now start with a loan of 30 years.
With their previous mortgage, but there was a payment of $ 19,000 compared to face value are paid about $ 98,000 in interest expense. So, in total they paid $ 117,458 to that company a loan! Furthermore, since they pay the mortgage again, if you use the full 30 years to pay them $ 408,808 to. 80. Ganz, they paid $ 525,000 for a house they bought for $ 175,000.
To exaggerate a bit with the message "so bad, probably about $ 5,000 or the cost paid for the first mortgage and $ 7000 hot on the new one. So that 12,000 dollars is out the window, so to speak.
Again, a refinancing may be useful if you can replace high interest credit card debt with mortgage debt loans. It can also cover tuition fees or even better you are in a situation where you budget your money than before the refinancing, the numbers just does not work.
When she saw this way, a refinancing may be a golden opportunity to start your financial situation again. The problem is that people do not often play their new home and, worse, that we begin to build, over the high interest credit card debt again.
Be careful not fall into this trap. If you can do to refinance too, for you do not blow. This could be the last chance. It was not long, it will be to elect a new president and a part of the agenda of the militant sound promising, so as to create something like a manual hyperinflation on! It would be wise to get a low, fixed interest rate mortgage now, if this is possible.
