Question:

What are the pros and cons of refinancing?

Answer:

Pros and cons of refinancing have to be weighted well every time you choose to take that step. Refinancing is simply replacing your existent mortgage with another one. Whether you benefit from the refinancing entirely depends on how precise your calculations of costs are.

Pros of Refinancing

Refinancing greatest advantage is that you may be able to reduce your monthly mortgage payments and interest rates. You may be paying large refinancing costs, but this is very similar to acquiring a new loan and cannot be avoided.

Other pros are the cash-out you can opt for if you have enough equity on your house, and hence the possibility to pay for long wanted items such as a vacation, or a new car, or cover incidental expenses. Also, a cash out refinance frees up cash an experienced investor may put to better use than having it buried in the house.

Cons of Refinancing

The disadvantage or con of refinancing is the danger of unnecessary equity stripping. Sometimes, and way too often, people consider their homes as never dying sources of cash. This may hold true if your property is situated in appreciating area, but if all your equity is used up and sudden depreciation takes place, you may find yourself in a dangerous situation owing more than your home is worth.

It is a good advice to consult a mortgage broker on refinancing so that you benefit from it, rather than waste equity over unnecessary purchases.

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