If you are facing an imminent foreclosure, you may still have several options at your disposal to save your home, and mortgage refinancing is one of them. It replaces your original mortgage loan and allows you to get a new loan with more flexible terms. It has become a fairly popular option among homeowners because it reduces the interest rates, and sometimes, allow them to get some cash out on their equity loan. While mortgage refinancing may seem like a great way to pay back your debt, it entails several drawbacks as well. It is best that you weigh in the pros and cons of mortgage refinancing to make a well-grounded decision to save your home from being foreclosed.
Pros of Mortgage Refinancing
- Lower Interest Rate: One of the top reasons to opt for mortgage refinancing is that you get a new loan with a lower interest rate than you have had of the original mortgage. For homeowners who are cash strapped, it can be a great opportunity to keep their home as well as preserve their credit.
- Lower Monthly Payment: Not only does mortgage refinancing lower the interest rate, it also reduces the amount you pay on a monthly basis. This makes it easier to make timely payments, and also free up money for other things, like saving, emergency expenses, and others, creating a win-win situation for you.
- Enjoy Cash Out on your Home Equity: Equity refers the difference in your debt and your house’s worth. One way to benefit from equity is to sell your home at the market price. However, if you do not want to sell your house or relocate, there is another option of cash-out refinance. This option allows you to borrow money against your equity and use it to refinance for more than the current principle balance of your house. You can use the additional amount to pay off your mortgage debt, or invest it into a business or home improvement project.
Cons of Mortgage Refinance
- One of the biggest drawbacks of mortgage refinancing is the costs associated with the process. Paying fees, points, and closing costs can take up a significant amount of money, which can be more than what you would gain from refinancing.
- Taking equity out can literally translate into owing more money to the lender.
- You may end up paying more in interest than what you would with your original mortgage, depending on the type of mortgage you choose. For example, if you go from a fixed rate to an adjustable rate mortgage, you might get higher interest rates.
- The new loan may take a longer time to pay off than the original mortgage
- It can be quite difficult to get approved for a new loan, as lenders tend to tighten their eligibility requirements.
Consult with An Elgin Real Estate Attorney Today
You should consider working with an experienced real estate attorney who can enlighten you about the pros and cons of each foreclosure defense option and help you select the best one based on your particular circumstances. For more information on how you can avoid foreclosure, you may call the Jackson Abdalla Law Group today at (773) 550-3853. We serve clients in and around Elgin, South Elgin, St. Charles, Bartlett, Streamwood, and Carpentersville.