Don’t Refinance Your Mortgage!! Without doing this first.
Statistically, did you know that most people will either move or refinance a mortgage every 5 to 7 years? Some, even more, frequent than that! Most people will have a short-term objective when considering a refinance. This usually includes a reduction in the monthly payments. Consolidation of debt. A home improvement. Cash out for an emergency or other reason. Or a combination of any of these.
The logic behind any of these reasons is usually fairly sound. The homeowner, with or without the aid of a financial advisor, has made the decision that this will help solve a short-term problem. But, what about your long-term goals or objectives? Do you even have a long-term goal or objective? This is what you should consider before making the decision about a refinance of your mortgage.
Every 5 to 7 Years!
The most popular loan is the 30-year fixed-rate mortgage. So, if you are getting this every 5 to 7 years, what’s the likelihood of outsmarting debt & ever being debt-free?
I’m not saying that you shouldn’t refinance. What I’m suggesting is that you take into consideration a longer-term objective.
Maybe instead of getting another 30-year loan, you get a 15 or 20-year. Some lenders can even customize the term to 17 or 22 1/2 or whatever you’d like. At least that way you’ll continue to move forward with paying off your mortgage. Of course, if you shorten the term, you’ll also increase the payment, so you’ll need to take that into consideration.
Perhaps you should figure out how long you may remain in your home and what the market values are in your area before making home improvements because you may not recoup what you spent on the improvements.
If you’re refinancing for the purpose of using your equity to consolidate other (consumer) debt, maybe you should have a plan in place to not bring on extra debt after consolidating. As a mortgage lender for 40 years, I’ve seen all too often when people will pay off all their consumer debt (car loans, credit cards, student loans, tax liens) and then I’ll see them again in 3 or 4 years to do the same thing again.
I realize that “life happens”. We have medical bills or we lose our employment, so we tap into our equity to bring us back to square one. I completely understand the need to get your finances in order and using a mortgage can be a very good option. It just shouldn’t be the “answer” or the “end all” to the situation. It should simply be one of the many steps you take to keep your family secure, financially.
In conclusion, if you’re considering using your home’s equity to fund improvements or consolidate debt, this can be a good thing but don’t let it be the only thing. Put a plan in place so that you’re not constantly starting over with a new 30-year loan.
