While a home mortgage refinance has many benefits, it does not make it the correct choice for all homeowners. Actually, for some people, it can be a bad and costly decision. Here are 4 reasons that can make a home loan refinance the wrong decision:

Reason 1) Credit Rating or History Problems
A lot of homeowners think that refinancing their mortgage will answer all of their credit issues due to the reduced monthly payments they will be able to get and use to pay off other debts. Typically though, if you already have credit problems, you will not be able to qualify for a low enough interest rate, and end up with a longer mortgage length. You could even end up with a refinancing offer with higher interest rates and a longer term.

Reason 2) You have been paying your mortgage for a long time.
If you have been paying your home loan for say 20 years, a refinance may not be smart financially unless you are looking to get into a 10 or 15 year loan. Otherwise, it is usually cheaper to pay off the remainder of the mortgage rather than add years to it for a marginal interest rate savings. Other options may be better such as a reverse mortgage, or a home equity loan, which could make more sense for your current financial situation.

Reason 3) Your have little to no Home Equity.
The equity you have in your home is the difference between the value of it and the amount you owe on it. If you are looking for the best refinancing deal possible, 20% equity in your home is the best way to get it. That means you do not want to use up any equity you do have that would put you below this 20% invested mark.

If you have recently tapped into and used a lot of your equity, a refinance may not be right for you. You should instead look into alternate ways to reduce your spending until you are able to pay down some debts and free up some of the equity in your home. Getting a new, higher, appraisal is an option if you have not gotten one for a while, this could help you reach the 20% mark.

Reason 4) Existing Spending Issues
One of the worst reasons you can refinance your home is if you do not have a proper plan to wisely use the extra money you will be saving. A lot of homeowners use their refinance irresponsibly and end up in a worse financial place than they initially were. All the potential benefits of a home mortgage may be lost and your home will be at risk while you must still deal with the loan problems.

Refinancing a home mortgage can be a great financial move, but if done wrong or for the wrong reasons, it can be a costly mistake. Make sure you have a plan and refinance right.

-M Petrone
www.RefinancingCondo.com

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