When I was a new homeowner, I refinanced and was so excited about it. I thought I could get the title loan, pay off the mortgage, and just move on to my next home with the peace of mind of knowing that I would be able to pay my mortgage without any issues. Well I was wrong. The lenders were offering far more than I thought they would be. The lender was offering far less than I thought I would be able to pay.
This is what I mean when I talk about borrowers who get really good offers. When it comes to refinancing, you’re really looking to increase your equity, but you can’t really increase your equity when you already have a mortgage. In fact, you’re going to get stuck with the same mortgage for years if you refinanced.
This is a common problem. When you finance a home with a high amount of debt (or a bad credit history), you usually want to refinancing as soon as possible. If you can refinance, youre going to save a lot of money in the long run. The problem is that refinancing has a lot of risks, so you really need to take those risks.
First, let me say that refinancing is not a sure thing. Most of us have heard of the fact that people are refinancing houses when they can’t make their payments or the interest rate is too high. That’s true, but it is also true that refinancing is an option in the context of a bad credit situation. The problem is that refinancing can be a bad idea. The best thing to do is to refinance at the lowest rate possible.
My husband and I refinanced our home several times. We both had bad credit, and when we refinanced our house they gave us a higher interest rate than we could afford. We paid it off with a small down payment and then made a few other minor renovations. We had the option to re-financing with the same company, but we decided to stay with our original lender because we didn’t want a repeat of that experience.
However, we can see how refinancing risk can be a good idea if it is well thought out. But the problem is when refinancing is a very low risk and the lenders arent willing to give you a high enough rate to cover the difference. That’s when the problem begins.
The first thing you should be aware of is that the lender is not the lender. They are a middleman who is paid by both parties. For the lender to make a decision, they must know what he or she is going to get on refinancing, so they can make an educated decision. The riskier the refinancing, the more difficult it is to negotiate.
The risk of refinancing varies from lender to lender, but it always comes back to the borrower. If the loan is a 30 year fixed rate, then refinancing the loan carries a risk of 20%. The mortgage lender takes this risk because they know that as long as the borrower keeps making payments, the rates will not go up. If the borrower defaults, the rates will go up dramatically.
By refinancing, the borrower is essentially taking that 20 percent risk off of the lender’s table. However, if the borrower defaults and falls into negative equity, then the risk is spread out across a much larger group of lenders. In the end, if the borrower fails to make payments, there is a very high chance of the rates going up.
