If you own a television or a radio, you are probably pretty familiar with the term “refinance.” There are tons of companies boasting about the great mortgage rates and every better refinance rates. Sounds wonderful, but what does all of it mean?If you refinance your home, a lender will pay off all of the debt you owe on your home and will issue you a new loan. This new loan can be pushed out to whatever length you need to get the monthly payments you are dreaming of. It can help lower your interest rate and can save you money every month. Refinancing can also help those with a bad, adjustable rate mortgage switch to a more stable fixed rate loan. But there are several major reasons NOT to refinance; to determine if this is the wrong time for you to refinance your home, ask yourself these simple questions.How long do I have left on my mortgage? Even if your payment is way too high for your current situation, refinancing a loan that only has two more years left on it will only hurt you in the long run. If you still have a substantial amount of time on your loan, a refinance would be better suited to your situation. If you are trying to refinance more than the remaining balance on your home loan, an equity loan may be the better route to go.How much is my home worth now? When you bought your home for $500,000 four years ago, you took out a loan for 80% of it. Too bad your home is now only worth $400,000. If you try to refinance a loan on a home whose value has dropped, you may not be able to get a loan large enough to cover your original loan. Refinancing loans isn’t for people who have lost a great deal of property value. Be sure to consult your bank to find out what would be a better course of action for your upside-down home.How much equity have a used? If you have taken out a second mortgage, be wary that refinancing your home with an equity loan already in place could drive you deeper into debt, instead of helping you out of it.How does my credit look now? If you got your home loan a few years ago, before you were unemployed for two months, or before that big hospital bill or bankruptcy, your credit may be a little worse for wear. If you try to refinance and your application is rejected because of your credit, it will negatively effect your credit score. If your credit has taken a beating, it doesn’t need another blow! Be sure your credit is healthy before trying to refinance; it will help you save money in the long run.Would I be financing for more than 80% of my home’s value? If you are planning to refinance your mortgage and second mortgage, be aware that new loans for 80% or more will drive your interest rate up.
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