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Ok, my dad just told me he was thinking about re-financing our home. I have always heard that this is something you don’t want to be doing. So can you please explain it, and if it is good,or bad. Thanks.
When you re-finance something your payments usually increase depending on interest rates. ( the rate you currently have verses the rate you are able to get will determine weather your payments will increase or decrease) People get into trouble when they take money out of the equity of the home and spend it on intangible goods. As the market shifts the house is no longer worth what you took out of it to spend on these goods. (home $100,000 ….worth and appraised for $130,000..time lived in home 5 yrs balance on home is $95,000 so one would assume they have $35,000 equity in their home….during the re-finance process you take $20,000 out for home improvements and a car…the market shifts and your home is still worth $130k but salable value is $98k…this is where the trouble starts..equity is like monopoly money..it does not really exist) I would contact a loan officer for better clarification but that is about the size of it. I would say a re-finance is okay as long as you do not take any money out…hope this helped
It is not “bad.” Refinancing means getting a new loan to replace the old one. There are valid reasons to do so – such as getting a lower interest rate on the new loan.
Whether it’s good or bad depends on the situation.
For example, if your dad is in an ARM that is set to expire, he could end up saving a lot of money if he refinances into a fixed rate loan, with a lower interest rate.
The amount of money he could save would depend on how long he plans to own the home. The longer the better because it can take about five years to recover the cost of the refinance.
Another option is to refinance to pull out “equity” in a home.
Example: the house is worth $200000 but the remaining balance on the mortgage is $140,000. You can refinance the loan and pull out $20,000 cash (you would want to leave the other $40,000 equity alone in order to only owe 80% of the home’s value).
As long as the $20,000 would be used for something beneficial, like college expenses, starting a business, or putting $20,000 down on a rental property, then the cash out refi is good.
The only time a refi can really be a “bad thing” is if you pull equity out of the home and then use the money to pay for a vacation, or a car, or basically waste the money on consumer goods.
When you first buy a home, unless you pay all cash, you finance it for usually 30 years at a hopefully fixed interest rate. If the rates go down, it may be a good idea to refinance to the new lower rate. It will lower your monthly payments (due to the lower interest rate and the fact that your are probably refinancing for 30 years again). The best way to determine if it is a good idea is to figure out how long you would need to keep the house to make it worth while, as you will have to pay all the closing costs again to get the new loan. A good rule is it is a good idea to refinance if the interest rate now available is 1% less than what you currently pay.
I would say it is actually bad. What happens is that someone comes to your home and reappraise it. You get a certain amount of money back. For EX. your home is worth $150K you paid 25K off on it. The home appraiser said the home is worth about 125K now so you will get back roughly 13K or less but you will still have to start paying off the 150K all over again. I heard it lowers your interest rates and all but I dont think it’s worth it.