Sometimes, refinancing a mortgage is not a good idea. With all the talk these days about how beneficial mortgage refinance can be, the truth can be different depending on your situation. Here are some of the most common reasons that make refinancing a mortgage a bad idea.

Some homeowners who have lived in their home have paid off a lot of the mortgages interest, and are now paying mostly principal. This means the later in your home loan you actually do refinance, the less benefits it will provide in the long term. When you first started making home loan payments, nearly all of them were paying for the interest on the loan. This means that equity was building, but slowly. However, as you home loan matures, your interest due decreases with every payment. The more payments you make, the faster you start building equity. While some people may still need or benefit from refinancing a mortgage that they have been in for a long time, most people will not.

Mortgage prepayment penalties are often included in mortgages, and the homeowner is unaware of them until they try to refinance. This fee can easily be thousands of dollars, and is very common. The purpose of this fee is for the mortgage lender or bank to ensure they profit on your home loan if you refinance or modify it into a lower interest rate or monthly payment. This fee is usually required to be paid off up front and can dramatically increase the length of time it will take a homeowner to recover from the other closing fees and costs. Sometimes though, this fee can be waived if you decide to work with your current mortgage lender or bank. However, you should count on having to pay this when getting a mortgage refinance.

If a homeowner does not plan on living in their home for a long time, a mortgage modification or refinancing can be a costly, frustrating mistake. While there may indeed be monthly savings in your home loan payments, you may not recover from the costs until a while down the road. That means if you move out of your home before you break even on the costs of a mortgage modification or refinancing, you will lose money.

While there are a lot of potential benefits for homeowners looking to refinance or modify their home loan, sometimes, it is not a good idea at all. Make sure you know what your future plans are and are aware of the risks and pitfalls a refinancing or mortgage modification may have for some people.

-M Petrone

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