So you have been juggling to pay your bills and making use of what you have to pay your mortgage, credit card bill, educational plan, and whatnot. Suddenly you thought of making use of your home’s equity for some reason.
In Texas refinancing has become a trend for different reasons; extending loan terms, home improvement projects, cashing out equity to pay off debt, buy a new car, and more. The idea of refinancing your mortgage is tempting; it sure has lots of benefits that you can enjoy. But looking at the bigger picture, jumping into this more significant responsibility can put you in a much higher risk.
If you are thinking of taking the road to refinance your mortgage, read on the following disadvantages, and think again.
Of course, when you apply for a new loan, there will always be other fees involved. There is no such thing as “no-cost refinance” as there will be a price to pay to the new lender. So how much money should you expect for closing costs? It usually ranges from 3 to 6 percent of your remaining loan balance.
For example, you have a $200,000 loan; the closing cost alone will range from $6,000 to $10,000. On top of that would be the other refinancing process like application fee, home appraisal fees, loan origination fees, and more.
Private mortgage insurance (PMI)
Texas refinancing will also cost you private mortgage insurance, which usually costs 0.05 to 1 percent of your loan amount per year. If you still owe 80% of the value of your home, then there is a chance that you will get charge for new private mortgage insurance.
Loan application process
Just like any other loan application, the refinancing process could be tedious and will eat up your time. You will be coming from here and there to accomplish additional loan requirements. You will also not be allowed to apply for refinancing if you have only lived in your home for less than a year.
Using your unpaid home as collateral for your new mortgage loan is a dangerous move. Unless you are willing to take the risk of losing a house when you can’t make ends meet in the future, then go for it. The risk gets bigger if you transfer your unsecured debts into another debt backed up by your home.
It will trigger bad habits
If the only purpose of refinancing is to use your cash-out to pay off your credit card debt, fund a luxury vacation, or buy a car, then you are surely falling off a bad habit that you will regret in the long run.
Consolidating your debt is the most dangerous financial move to push through a Texas refinancing program. It will only trigger you to go back to your old habits of maxing out your credit card for something that you don’t need.
Some also see refinancing as a way to get extra money and invest in a business venture; this is too risky as not all businesses succeed on the first attempt.
Taking advantage of the benefits of refinancing could be a wise move, but not all the reasons behind it make sense. If you are only seeking to use your home’s equity to fund your luxury lifestyle, then refinancing is not for you. Take a minute to evaluate your decision and other options before jumping on this huge responsibility.