Hidden Costs of Mortgage Refinancing Can Leave Chicago Homeowners with More Debt

For many folks, a mortgage refinance seems like a dream come true - with a lower house payment, you might as well be getting free money each month, right?

But just because rates are low doesn't always mean you'll benefit from a refinance, say Chicago bankruptcy attorneys. In fact, sometimes the hidden costs of reworking your mortgage might mean you're better off sticking with the one you have and looking for other ways to find extra money - like lowering credit card debt and other obligations.

First there are the upfront costs. It's possible to accumulate so many fees during the loan refinancing process that you cancel out any savings you would have reaped with a lower rate. Before you sign anything, pay attention to the fine print - common expenses include fees for administration, paper preparation and processing, inspections, appraisals and title searches, just to name a few. Do the math and make sure that your total closing costs won't make your lower mortgage unmanageable.

Now for the long run. Mortgage payments are a combination of both interest and principal. When you take out a mortgage, your payments for the first several years cover mainly interest and not much of the principal. As the principal slowly begins to drop, this reverses because there's less balance on which to pay interest. When you refinance, however, you start all over again, paying mostly interest and putting off the time when you'll actually build equity in your home. By continuing to extend your interest payments, you could end up paying more down the road.

If your mortgage is giving you trouble but the rest of your finances are airtight, refinancing may be the solution. But if, like most Americans, you're struggling to pay credit card debt and other bills on a limited income, you've likely got bigger problems than a pricey mortgage. Even if you lower your house payment, debt can keep haunting you - if it grows to the point that you can't afford your smaller mortgage, then what?

By tackling debt first, you can lower your payments and have more money leftover for the mortgage, whatever your current rate. Bankruptcy is often the most effective way to afford paying off a large debt. It's free to learn more when you attend a community financial workshop or try a personalized debt analysis with a Chicago bankruptcy attorney.

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