Everyone has trouble paying bills from time to time. Those looking for solutions may focus on one of their most significant expenses – the mortgage. Some may wonder if it is a smart idea to refinance the mortgage to save money and give them more financial breathing room. For some, this is a good idea, but for others, it may not be advisable.
Factors to weigh
There are some important financial issues to consider when determining whether it is a good idea to refinance:
Are there plans to move?
It often takes up to five years of new lower payments to recoup the money spent refinancing, so refinancing may not make sense for those planning to move soon.
Are there plans to use home equity to consolidate debt?
It may seem to make sense to take advantage of a mortgage’s lower interest rate, but bundling unsecured credit card debt with the secured mortgage debt can lead to losing the home if the owner falls behind on payments.
What about a modification?
It does not hurt to ask mortgage companies about a modification as opposed to a foreclosure. Modifications lower monthly payments, but there is more interest paid because it extends the loan’s terms. There also could be a forbearance, which reduces or suspends payment obligations for an agreed-upon period. The homeowner then can then resume making payments.
Not enough?
The homeowner may realize that refinancing the home does not offer a long-term solution to the debt issue.
Each individual or family’s finances are unique, and some may realize after exploring the above and other options that there is no viable solution. In cases such as these, the best option may be to file bankruptcy.