Home Loans: Pitfalls of Refinancing Too Often

SA Home Loans: There are times when it make sense to refinance you home loan like when you are lowering your interest rate enough to make a noteworthy difference in your mortgage payments or when you significantly decreases your loan term.

Another benefit is you need to consolidate your debt to improve cash flow. However, do not make the mistake of converting short term debt into long term debt. Rather keep the repayment short so that you can derive the maximum benefit from refinancing.

You have to carefully consider if refinancing your home loan will be beneficial to you not just in the short term, but over the long term too.

One mistake that a lot of people make is that instead of making refinancing a once off event , they apply for a refinance loan every time there is a little bit of equity available.

Some think that if they consolidate some of their high interest debt in the process that they’re basically debt free. However, except for decreasing your equity each time you refinance you are also increasing your home loan debt.

Instead of paying off your mortgage debt you have increased your loan term. If you refinance too often, although your monthly payments may go down it will cost you a lot of money over the long term.

Keep in mind that in the beginning of your home loan the largest part of your payment goes toward interest and not towards the reducing your capital. So, if you refinance too often you’ll end up paying the maximum interest for a very long time.

If you want to protect your equity use it as wisely as possible.

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Why Apply For a Refinance Loan to Ease Your Financial Burden?

The individuals that have a property with equity in have an advantage when looking at consolidating debt. They have the option of applying for a refinance loan to solve their dwindling cash flow.

What is equity?

Equity is the positive difference between the market value of your property, and the outstanding bond. So if you owe less than the value of the property you have equity in your property. After you have bought a property, the normal course is that the value will increase, and your bond will decrease as you pay it off. This will increase your equity.

When the equity has increased sufficiently, you can apply for a refinance loan. This would mean you are applying for a home loan on an existing property, and thereby accessing the equity in your property.

Why apply for a refinance loan?

If you, like many others, are looking for a way to consolidate your debt, or just access additional funds, this is a good option. Since your mortgage is the “cheapest” kind of debt that you can have, you will be able to increase your cash flow tremendously. If you compare the lower interest rate and longer terms that a home loan can offer, with credit cards, personal loans or other high-interest debt you might be surprised to see the difference.

If debt consolidation is your goal, a good advice is to invest some of the additional cash you have available into your home loan. This will help you pay off your mortgage quicker, and will increase your equity again.

Since applying for a refinance loan can a daunting task, you can make use of a professional mortgage originator to assist you during this process. This will take a lot of pressure off your shoulders, and you can rest assured you will be in good hands.