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Disadvantages of Home Loan Refinancing

BY: Deena David | Category: Business and Finance | Post Date: 2010-01-30

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   Deena David
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Home loan refinancing has become a common practice in all economies. As this becomes a norm, more and more people are getting caught in a web. There are advantages and also disadvantages of home loan refinancing. In a particular situation, the advantages my outnumber the disadvantages. However, the disdavantages usually cause the biggest and worst impacts in an individual's life. The major disadvantages are as follows.

1. Interest Rate

When an individual applies for a loan the company seem to forget to confirm whether the loan that they obtained has the fixed interest rate or adjustable interest rate. Loan lenders always try to manipulate their customers by giving the loan which has adjustable interest rate because when the interest rate increases the monthly payment of their customers also incresases. For the consumer, this situation will cause problem in your financial flow. Moreover, you will be allocating the money for your home loan refinancing, but when the interest rate increases you will not be able to settle the amount because the monthly payment increases together. This situation leads to serious problems.

2. Economy

Economy also has a close relationship with home loan refinancing. When the economy is stable there would not be any problems in the monthly repayment and the interest rate as both of these would be stable and there would not be any change in them. When the economy of a country goes down the interest increases and it becomes a disaster for you to pay your monthly repayment. So there is always a very big risk if you intend to refinance your home for loan. Moreover, economic crisis will lead to very high monthly loan repayment and will lead to so many other problems too.

3. Long Term Loan Repayment

When you refinance your home, you will generally assume that it is better to have a long term to repay your loan. But that is actually a very big risk. When the period of your loan repayment is very long you will be initially paying interest for the loan only and not the amount of loan. How long you will be being the interest, which is so high for home refinancing, depends on various factors. It is better to have shorter periods to repay your loans to secure your financial flow. This is because the loan and the interest are paid together and the person is able to get rid of the payment process as early as possible.

These are some of the disadvantages of home loan refinancing. A person has to really thibnk of the various pros and cons in their situation before deciding on the type of loan that they want to opt for. The advantages and the disadvantages should be looked into before opting for the home loan refinancing. This is the best practice that will help you to be able to get good value for the money. These advantages and disadvantages of home loan refinancing may vary from country to country, but the individual has to think of it before opting for it.

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