Home refinancing can be a tricky situation for a homeowner. For a consumer looking to stay in a home for a long time, it can be a money-saving move that can consolidate first and second mortgages. A consumer who has lost money in the falling value of a home might actually lose more money by refinancing.
One Monthly Payment
If you're a homeowner with multiple mortgages, a consolidation loan can make your debts easier to manage through one monthly payment. This greatly reduces the chances you'll accidentally miss a payment and hurt your credit score since you only have to worry about one payment. The interest rate of a consolidation loan is also typically lower than that of a second mortgage, which can save you money over the course of repaying the loan.
Fixed Interest Rate
Home refinancing loans typically have fixed interest rates according to the Consumer Finance Report. If your current home loan is a variable-rate mortgage, this can literally save you thousands of dollars over the course of repayment. Additionally, a fixed-rate refinancing loan does not allow the lending institution to raise your interest rate if your credit score goes down or if you make a late payment.
Loan is Secured to Your Home
A refinancing loan is like a mortgage in that the bank secures it with your home. This means if you default you will lose your home in foreclosure. This is a serious black mark on your credit score, which will remain there for at least 10 years. This also can make it all but impossible to secure another home loan. Carefully examine a refinancing loan's interest rate and repayment terms to ensure you can make the payments and not lose your home.
Losing Money
A refinancing or mortgage-consolidating loan is not always a money-saving option. These loans have associated fees that can run in the thousands of dollars and offset any savings a better interest rate might bring. In addition, if you are "upside down" on your home, meaning you owe more than your home is worth on the market, it will be nearly impossible to refinance. No bank will accept what is essentially a money-losing deal for them.
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