Why not to refinance

Why not to refinance

July 19, 2016
Why Not to Refinance
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Refinancing is a popular solution to numerous financial problems that an individual or a business may encounter along the way. It can help save money, pay off a loan that’s due, put some extra money in your pockets each month, shorten the loan term or consolidate debts. But, and this might surprise you, choosing to refinance is not always a good idea.

In spite of its many pros, refinancing also has some cons that you should be aware of before choosing to move forward with it. Here are some of them:

1. Refinancing can be expensive

It’s very important to know that some loans, such as home loans, also include closing costs, which can add thousands of dollars to your bill. And even simpler loans from online lenders feature processing and origination fees. It’s important you use a mortgage calculator, do the math and make sure that you break even before paying these additional costs. Otherwise, you might end up spending more money than you have to.

2. You may have to pay more interest if you refinance

In some cases, individuals or businesses opt to change their loans with new ones, with longer terms, in order to get lower monthly payments. This can prove very helpful, as it leaves the borrower with more money for other monthly expenses. But it can also end up costing more on the long term, because of the newer loan’s longer lifespan.

3. You may lose some benefits

Some loans have important features which will be lost if you refinance. Federal loans can be forgiven if your career involves public service. And federal student loans are more flexible than private student loans and can come in handy if you fall on hard times. Additionally, a fixed-rate loan can prove to be a wise choice if interest rates start to rise.


Thomas Hookton is a finance journalist, history buff and science fiction connoisseur. Hit him up via email.

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