2 Times When Refinancing Your Home is NOT The Smartest Move

I’m committed to ensuring that you have the best possible advice about refinancing, money and credit issues, because when your financial house is in disarray, life can stink.

It’s usually a smart move to take care of all the small issues that can hold you down – whether the issue is high interest credit card debt or skeletons in your financial closet – but there are also a couple of times when refinancing isn’t in your best interest.

Today, I want to talk about two instances when refinancing may not be your smartest choice.
Situation 1:  Refinancing wouldn’t be your best choice if you were nearing the maturity date on repayment of your mortgage loan.  The reason it wouldn’t make sense to refinance at this point is because of the way interest rates are calculated.  In the early days of your mortgage loan, more of your monthly payment is applied to interest, and with each subsequent payment a little more of your payment goes towards principal.  At the very end of your loan, almost all of your monthly payment is being allocated to principal. 
If you refinance at this point, you reset the clock on your mortgage.

Such a move could unnecessarily cost you thousands of dollars in extra interest payments.

Situation 2:  Depreciating assets.  Your family’s car is an example of a depreciating asset. It reached its peak in value the day the factory installed the trim and tires, and it will continue declining every day you own it. So it wouldn’t ordinarily make sense for you to pull cash out of your home refinance loan to pay off the car.

Look at these numbers as an example.  Pretend you have five years left on your 8% car loan and your balance is $10,000. If you keep paying the bank or the finance company, the interest will cost you about $2,200.  If you pull cash out of your refinance loan to pay off your car loan, even if you got a 6% interest rate, that money would cost you over $11,000 over the course of 30 years. 

That’s not your smartest move, is it?

What could you do with that $9,000? Would you take a trip? What would you do? How much could $9,000 help your financial situation?

Need to unlock your home's equity - but have a few questions? Why not consider a free private email consultation with me, Darrin Roseborsky? There's no obligation or commitments to worry about. Just helpful answers to your questions. Use the short form in the top-right corner to get started. And in a few minutes, you'll have the answers to all of your questions.