Refinance rates may seem incredibly tempting for people paying on a mortgage, but a new article shows that you should actually be on guard against those incredibly low mortgage rates, or you could actually spend more by refinancing than paying your current mortgage off.
The Sacramento Bee reports that there are three reasons why you should not refinance your home, despite the fantastic-looking mortgage rates. The first reason is that you could actually end up owing more than your home is worth.
Mortgage brokers state that a lender will typically ask you to pay a lightly higher rate of interest than the national average, and could also ask you to pay property mortgage insurance, which will add thousands to the cost of a loan, according to financial planner Blair Shein.
The Ledger reports that the second reason is that you could take a new job in a different state. Plantation, Fla., financial planner Matt Saneholtz, who is president of the Financial Planning Association of Greater Fort Lauderdale states that you could lose money on refinancing if you don’t stay in your home for at least two years, because you won’t have time to recoup closing costs.
Finally, the Sacramento Bee notes that you could end up paying more, especially if you have less than five years to pay. This is because a longer loan length equals more interest costs, even if your monthly payment will be less. The only way you come out ahead is if you continue making your existing loan’s bigger payments on the new loan. This way, you will pay less interest and pay the loan off faster. Shein states, however, that, “the reality is that most people don’t that.”
Ultimately, The Ledger recommends to examine all of the costs before signing up for a new loan, because despite good refinancing rates, refinancers could end up with secret costs added to the loan, which could cost thousands more.