Home interest rates reached all-time lows in recent months, a factor that motivated many homeowners to look into refinancing their mortgages. While the thought of changing out your interest rate for a lower one and reducing your monthly mortgage payment may seem ideal, it may not be as good as it looks. Personal finance guru Suze Orman recently highlighted one of the biggest mistakes homeowners make when they refinance their homes.
Orman notes that many homeowners are often so excited about reducing their mortgage interest rate that they often rush into refinancing their homes without thinking about its downsides.
She notes that this often results in homeowners taking on a new 30-year mortgage despite having already spent several of them paying down their original note. She notes that many borrowers end up locking in a lower interest rate but extend their payback period to 40 years or more.
When pressed for an alternative to opting for another 30-year loan, Orman suggested that homeowners only replace such a mortgage with another if they’re a few years into making payments. Otherwise, Orman recommends that borrowers find a shorter-term loan to replace their existing one.
Orman notes that many homeowners opt for another 30-year mortgage because they don’t feel that they can afford the payments that would come with selecting a shorter-term loan. She notes that the current low-interest rates may allow homeowners to refinance what they still owe on their original loan and still end up with a similar comparable payment to what it would be with a 30-year note. Plus, she notes that even if the amount a homeowner pays each month is higher, the interest that they end up not having to pay on the short-term loan may result in savings in the end.
Choosing to refinance your mortgage may seem like an obvious one, while the interest rates are currently at historic lows. You may want to think critically about whether it’s right for you based on where you’re at in the repayment process, though. A refinancing attorney who has experience in providing trusted legal counsel for real estate matters of all kinds here in Georgia is who you will want on your side, helping you decide how to proceed in your Augusta legal matter.