What are the advantages and disadvantages of refinancing a home if the prevailing interest rates are lower than the mortgage rate?
Many individuals refinance their home if they can get a lower interest rate. Still, one needs to deliberate the additional costs. Primarily, the homeowner has to pay a loan up-front fee for the processing of a new loan, and you possibly will have to pay-off the penalty on the previous loan. In addition, you will be charged with attorney's fees, closing costs, etc.
If you plan to stay in the home for a long period of time, or longer than three years, you may be able to regain the expenses with the lower interest rate (if the new rate is at least two percent lower than the old one). But if you aim to put up the property for sale soon, you may actually pass up a benefit. Your former loan may be assumable, even if it has a higher rate, and the new loan may not be. So if the rates go up again and you try to sell your home, you may encounter difficulty because the purchaser would be required to pay the latest interest rate.
Normally, if you have plans of settling in your home for several years and you could lower the interest rate by refinancing, it's a good idea.
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