Jeffrey Strain, one of the personal finance who wrie a lot of articles for Saving Advice Website. Today I found his blog called Personal Fiannce Advice because of his post about the money myth. In his post, he shared with us the money myth of refinancing a mortgage. Below is part of his post that I want to share it here:
“The problem was that he had confused paying less on a monthly basis with saving money. He had achieved the first (paying less), but had also extended his mortgage back to 30 years each time he’d refinanced. This is a problem I see often when someone refinances a mortgage loan. For example, if you had a 30 year mortgage and had paid it for 5 years before refinancing, and when you refinance you do so for a 30 year term again, you have extended the previous 30 year loan to 35 years. Since the first years of the loan are when you are paying almost all interest, even with the lower interest rate and lower monthly payments, you’ll still likely pay much more money over the long term for the loan.”
Some words from me :
I totally agree with Jeffrey that we must be careful in refinancing our mortgage. As I know, the first few years, most of our monthly payments are paid to interest instead of the loan. So if you refinance your mortgage, then possible you will pay more in interest in long run. However, if you refinance your investment property, the story will be different. For example, if Jeffrey’s friend refinance his mortgage for investment property, then he can leverage on the mortgage and take out some cash from it. Let’s say he rent his house out and have a monthly rental that more than his monthly installment, then the risk of interest rate will be covered by the rental. So if he refinance his mortgage, then he is just taking out some profit from the mortgage. There are a lot of knowledge in refinancing a mortgage. What we can do is just learn it and in one day we can profit from it.
Source : Personal Finance Advice
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[...] Although refinancing your mortgage sometimes is a good idea but in certain condition, it is also not advised. Each situation is different, so you????ll have to calculate for yourself whether it????s worthwhile to refinance. [...]
Yes that is true to its nature.Prior cheking of oneself regarding the refinancing issues,the calculations of interest rates so on would certainly help him not to overload himself in the future.Pay option arm loans is one such resource providing service to those who wish to loans.