Costs of Mortgage Refinance Can Increase Debt for Atlanta Homeowners
Who wouldn't want a lower mortgage payment, right? Problem is, sometimes a smaller house payment comes at a bigger price.
Today's low interest rates have many homeowners scrambling to refinance their mortgages. But while some people can benefit from a new loan, others might find the process and it's hidden fees more trouble - and money - than it's worth, say Atlanta bankruptcy attorneys. In that case, getting rid of debt might be a better way to free up more money each month.
There are a couple ways that refinancing can hurt rather than help your finances. First, it can often increase your overall payment. Your monthly mortgage payment is made up of two parts - the principal (or the actual cost of the house) and interest. The way loan amortization works is that the payments you make early on cover mostly interest and little of the principal. As the principal slowly lowers, so does interest - until eventually most of your payment goes towards building equity. If you refinance before you start making a dent in the principal, though, you're back to square one. In the long run, you end up making more payments since you spend so much time paying mainly interest.
Paying more in the future might not seem like a big deal when you've got more immediate concerns, but how about paying more today? Refinancing a loan isn't free - just like buying your home, getting a new loan comes with costs, some upfront, some hidden. Think inspection fees, appraisal fees, administration fees, document preparation fees - and the list goes on. Make sure you know what the final cost of your refinance will be. You don't want all the money you save on your mortgage payment going straight back to the bank.
Here's the bottom line. If you've got a steady income stream and little debt, a refinance can make sense. But if you've got other financial concerns - for instance, you're regularly spending beyond your means or struggling to pay the credit card bills - a lower mortgage is only a temporary fix.
The only permanent way to free up money is to free yourself from debt. If you've got too much debt to handle on your own, bankruptcy can give you the fresh start you need. Find out more for free when you attend a DebtStoppers community financial workshop or schedule a complimentary personalized debt analysis with an Atlanta bankruptcy attorney.