Refinancing mortgage is the process of replacing your existing mortgage with the new loan that has been approved with modified terms and conditions. But new terms and conditions doesn’t mean your recent loan is comprehensive and it doesn’t have any drawbacks. In some of the cases, disadvantages of refinancing mortgage may prevail over its benefits. Following is the list of pitfalls associated with refinancing mortgage which can be avoided by proper planning and research.
• Low credit score: Even if you have superior quality collateral, ready to tolerate any cost and satisfied all documents, but if you have poor credit score because of your previous minute defaults then your application will get rejected. So your poor credit score can be a major hurdle for an endorsement of new refinancing mortgage.
• Previous mortgage penalty: It is necessary to do some homework on your earlier mortgage before applying for the new finance. You should make sure that your previous mortgage does not have any penalties pending. You must have reasonable interest savings from your first mortgage to justify refinancing it second time.
• Arbitration: It can turnout as a biggest loophole in refinancing process, if you will involve in arbitration agreement. Many mortgage lenders deceive their borrowers by signing arbitration agreements, which force them to sacrifice all rights and protection they generally receive under the law. Agreeing to this agreement means assigning third party judge to resolve any legal disputes associated with lender.
• High interest rate and fees: Some greedy mortgage lenders are ready to give you excessive loan even if you have poor credit score. But it is definitely not a beneficial thing for you because that extra loan also comes with high interest rate and elevated processing charges. So these hefty charges can become big obstacles for you, while paying loan installments in stipulated period of time.
The major threat for mortgage refinancing comes from lack of knowledge and awareness. If you are unaware of pros and cons of refinancing, then you are very much vulnerable to unethical practices done by mortgage lenders and brokers. It is not possible to completely eradicate pitfalls related with refinancing mortgage, but with thorough research and survey you can mitigate its implications up to significant extent.
