Pros and Cons of Refinancing You Home Loan Mortgage

In times of rising interest rates it can be sorely tempting to think about refinancing your home loan mortgage on cheaper terms than you are currently paying. Before you rush out and find a lender willing to refinance your home loan however, you may want to give some thought to what the pros and cons are to refinancing your home loan mortgage.

Pros

1. Interest rate : probably one of the most attractive reasons why homeowners may want to refinance their existing home loan mortgages at the moment is to take advantage of being able to fix the interest rate being charged on their home loan. In the event that you think interest rates are likely to rise again in the near future, this becomes and even more attractive option.

2. Equity release : nearly every household has some form of equity embedded in its value. In times when money is tight and interest rates are rising, it can be very tempting to release some of the equity in the home's value and use this money to pay-off all of our outstanding credit card and loan debt at one time, freeing up our deposable income.

3. Home renovations : if you are looking to make an upgrade to your home then you'll know the cost of the material and labor is not going to be cheap. One way that you can afford to pay for the needed upgrade without causing yourself financial difficulties is to refinance your home loan based on the value of the home's equity and increased value upon completion of the upgrade that needs to be done to the home.

Cons

1. Fees : without doubt the biggest drawback with refinancing a home loan is the fees that are going to be associated with the process. And the term fees is used here because there is going to be more than one fee, so best get used to the idea if you want to proceed with the process! The first fee you will have to pay is a fee to have you home evaluated to ensure that the value of the home is what you say it is and that the lending is safe. The second fee you may have to pay is an arrangement fee to the new lender for agreeing to lend you the money. The third fee you'll most likely need to pay is breakage fee with your existing lender for repaying the home loan early.

2. Interest rates : just as interest rates can have their upside, they can also cause you to wish you had not done what you did! In short, you just have heard the saying that “interest rates can go up as well as down”? Well, if you fix your home loan mortgage interest rate for too long a period, you may find that interest rates fall and you'll be stuck with a home loan fixed to an interest rate that is higher than the prevailing market rate.

3. Lock-in : a number of lenders who agree to refinance a home loan mortgage do so on the condition that the borrower cannot move their home loan to another borrower, either for a short space of time or, alternatively, for the period of the home loan. If that's the case, then you may well be tying yourself up from any future move you may wish to make to finance your home loan on even cheaper terms than those that you're getting with your fixed term home loan interest rate