The popularity of mortgage refinancing is on the rise once again. However, many are bothered by mortgage applicants improperly using their homes as a mortgage. Many are reporting that applicants for mortgage refinancing are using their homes to get new mortgages. This is alarming many experts, as doing that can be detrimental for the applicant in the end.
Mortgage Refinancing By Using Your Own Home Isn't a Good Idea...
According to CNBC, only a few mortgages have been cashed out this year. That is due to the negative effects of the COVID-19 pandemic. Even though many have already refinanced their home loans, only a few have been cashed out as of the moment.
Out of all the current mortgages active, only 27% of those have been cashed out, a report said by Black Knight. They have said it was the lowest data they have gathered in 7 years. It is not surprising to hear that if you factor in what happened this year of 2020.
Do take note that most mortgages refinanced loans are only valued at an average of $51,600. This is less than the previous amount of $63,000, which was only last quarter. Even though the prices of most housing properties have increased, along with the number of borrowers increasing as well. This makes getting a mortgage refinancing by using your home underwhelming and sometimes useless.
The main reason why most are not cashing out is that of savings. Many chose to get refinancing for the purpose of having savings and not for immediate spending. Add that the rates of mortgages dropping this year, many will take the chance to recuperate the money they have lost.
Advantages and Disadvantages of Mortgage Refinancing
Although using your home can be a bad thing, there are still some good advantages it can bring. According to Forbes, listed below are the good and bad sides of mortgage refinancing using your home. Yes, it still has disadvantages that you must be wary of, though...
Advantages of Mortgage Refinancing:
- Savings can be increased long-term.
- Credit card debts can be paid off.
- PMI (Purchasing Managers' Index) can be ridden of.
- Refinance is possible via a loan from FHA (Federal Housing Administration)
Disadvantages of Mortgage Refinancing:
- Using the cashed out money for shopping sprees.
- Monthly payments are most likely skipped when you have money from the cashout.
- Using it to improve cash flow in a short-term solution.
- Getting a mortgage refinancing after being influenced.
When Is The Right Time To Get A Mortgage Refinancing?
Although getting a refinancing for the wrong reasons in the wrong timing can be a bad thing, there is also a good time for getting one. According to Investopedia, below are the good factors to consider the time is right for getting a mortgage refinancing:
- Getting an interest rate with an overall low rate.
- Shortening the mortgage term.
- Getting your current mortgage to be changed (i.e. from Adjustable Rate Mortgage (ARM) to Fixed Rated Mortgage (FRM) and vice versa).
- For dealing with financial emergency situations by tapping into home equity funds. Can be also due to financing a large purchase or debt consolidation.
ALSO READ: The Essential Components of a Mortgage Loan & 3 Mortgage Mistakes To Avoid Before It's Too Late
