Mortgage Refinancing

Refinancing is currently one of the most popular activities today by most property owners. Because of the recent economic slump that has considerably affected the real estate as well as the financial industry, the interest rates are lower.

This movement was implemented since these institutions are trying to gain more customers which will somehow help offset the losses that the financial institution is experiencing. They are even acceptable to very competitive rates that are not offered during normal economic conditions. Refinancing has gone down as well and most mortgages are being refinanced to lower the interest rate.

It doesn’t even matter if you don’t reach the required equity. The FHA or the Federal Housing Administration is accepting refinancing of properties that only has 5% equity. Because of recession, they are even allowed to offer refinancing for those who are experiencing negative equity by as much as 5%. This is very feasible since most properties are experiencing 20% slump in the value of their property which will single-handedly deplete the equity of their property.

But jumping into recession because you are still within the acceptable equity is never a good thing. There are things that you should never do or facts that you should not consider if you’re opting for refinancing. If you do these things, you just end up suffering financially rather than gaining from this form of transaction.

The Don’ts

• Refinancing with interest lower than 1%

This is probably the number one rule that you should follow. If someone offers you an interest rate that will not drag down your interest rate by 1%, you are in the losing end. In fact, just to be safe, you should look for a company who can confidently drop your present mortgage rate by 1.5%. By having this threshold, you are getting what you want – a lower interest rate and easier payment plan even with the fees.

Remember that there will be extra fees in your previous mortgage company as well as your current refinancing company.

• Cashing Out with Refinancing

Most refinancing companies will encourage you to have some cash out. You can use this as your emergency fund or you can use this to purchase things that you want. But cashing out could be very costly. Even if it’s just $5,000 for cash out you would still have to deal with it in the future. It will even pile up on your current payment plan which means you are increasing your monthly payment fee. Only consider this option in extreme conditions.

Remember that you opt to refinance today since you know the interest rates are lower. Your only goal is to lower your interest rate and have a better payment plan. Anything else beyond that (especially cash out) is never a good thing.

• Ignoring the Savings on Monthly Payment

Lowering your monthly payment doesn’t mean you have something extra to spend on the things that you want. For example, if you have lowered your monthly payment by $200 a month because of refinancing doesn’t give you the allowance to change your cable subscription for additional channels.

Instead of splurging this money, use it as your monthly savings. Many experts say that this is going to be a very long recession and if you’ll be out of job right now the next time you’ll have the same job with the same pay could be in 2010. If you don’t have any savings, you’ll be in a lot of trouble.

Refinancing today is a great idea. But be careful on your new rates and how you use the savings. Misuse of your savings will offset the advantages given be refinancing.