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Saturday, January 30, 2010

Mortgage Refinancing Gone Wrong

Mortgage refinancing is a very good move in most cases and can be very beneficial for the individual. On the other hand, mortgage refinancing gone wrong is also a reality as you might end up with a new deal that stands up as worse when compared with the previous one. You need to understand when and how to properly go through any type of refinancing because we all want to gain money and losing it through a bad deal can be avoided with proper understanding of basic terms and a little research. We are usually faced with morgage refinancing gone wrong when there are wrong calculations when switching to new interest rates.

When an individual refinances a mortgage this is done because the market is showing lower interest rates when compared to the ones linked to the current mortgage. You must not start motgage refinancing just because you notice lower interest rates.

In most cases, in order to be successful, the interest rates available need to be with 2 percent or more lower than the ones you are currently stuck with. There are also some fees that are activated in the event of different situations. Most mortgage loans will have such fees linked to paying off the entire contract in the event of mortgage refinancing. When we see that the money gained from mortgage refinancing is lower than the fees paid we are faced with mortgage refinancing gone wrong.

Many individuals do not calculate the taxes that need to be paid. When switching to a new mortgage via refinancing and we are faced with lower interest rates we will also see that a lower amount of the interest will be deducted from tax. This leads us to a higher amount to be paid in taxes and thus adds to the above mentioned elements that are to be subtracted from the savings made through morgage refinancing.

While most individuals are aware of the risks linked directly with interest rates, few know about the tax related problems. This is another popular reason why we notice mortgage refinancing gone wrong. When the individual is faced with problems in his/her life, the human mind tends to not think properly and action is based in instinct. You can thus notice a great mortgage refinancing option that looks suitable for your personal needs but because you are blinded by need, you may neglect different aspects. This leads us to balloon mortgages, another popular reason for mortgage refinancing gone wrong cases.

Such mortgages seem very good because what you actually pay each month stands in only the interest or the interest plus a small amount of the principle. This means that the monthly payments will be a lot lower than what you are paying but you might be hit with the need to pay the entire principle or a huge percentage of it at the end in one payment.

These offers look like an advantage because most people think that the lower monthly payments will lead them to saving money that can be invested and thus the principle payment will be easy to pay due to the long terms of the loan. It is highly risky to think like this and you never know what can happen. You might be faced with mortgage refinancing gone wrong once you realize that you can not payback the principle and you are hit with loosing your home. If properly analyzed, morgage refinancing can not go wrong. Unfortunately, some people will not look at the problem seriously and they are actually gambling with the biggest asset they own: their home.