The reason you shouldn't pay off your house early are.
You might not be able to put as much money away into a retirement account.
You cannot put the money towards other investments.
You could get a small knock on your credit score.
You lose access to any tax deductions on interest payments.
You lose liquidity paying off the mortgage.
The biggest reason not to pay off your house or mortgage early is in the opportunity cost.
The money in your savings account is yours to do what you like with, but once you have paid off the mortgage that is it.
If you pay an extra $100 a month on your mortgage you will cut the mortgage term by more than 4.5 years and lower the interest paid by more than $26,500.00.
And if you pay an extra $200.00 per month towards the principal on the mortgage you can cut your mortgage term by more than 8 years and save as much as $4,000.00 or more in interest.
You do pay closing costs again when you close on a refinance just like you did when you signed on the original loan for the home and closed on the home.
You also might see attorney fees, title insurance fees, and also appraisal fees rolled into the closing costs on the refinanced loan.
Refinancing a house takes around 30 days to 45 days from start to finish.
When refinancing your house you will usually need appraisals, inspections and other services performed by third parties that can delay the process of the home mortgage refinance.
After a refinance the refinance usually takes on average of 30 days to 90 days to show up on your credit report because there's a reporting delay.
During a refinance your credit is usually checked up to 3 times during the refinancing of the loan process.
When you apply to refinance a loan, lenders will check your credit score and credit history.
This is what's known as a hard inquiry on your credit report—and it can temporarily cause your credit score to drop slightly.
Refinancing does make your payment lower although it can make the loan more expensive by the time you pay off the mortgage or loan especially if you're adding years to the mortgage or loan.
However if you do need to refinance your mortgage to avoid losing your home then paying more in the long run can be worth it.
Refinancing has a lot of advantages: It can allow you to lower your monthly payment, save money on interest over the life of your loan, pay your mortgage off sooner and draw from your home's equity if you need cash.
Refinancing also comes with closing costs, which can affect your decision.
It is better to refinance with the same bank as you have an established relationship and the familiarity helps when it's time to reach out with any questions or navigate the lender's payment processes and all while keeping your personal finances as streamlined as possible and you may also pay lower fees.
If meeting with lenders face to face is important to you, a local bank with a good reputation is a sound choice.
Local banks may also have better rates or lower fees than online options do.
Both types of lenders offer mortgage pre-approval.
Things that disqualifies you from refinancing your home are too much debt such as your debt to income ration is above the lender's maximum allowed percentage then that can stop you from refinancing.
A low or poor credit score is also another thing that disqualifies you from refinancing.
A bank can refuse to refinance a mortgage especially if you have too much debt or have not been making your mortgage payments on time.
Mortgage lenders have to make a good faith effort to ensure you can pay back the loan or mortgage so they have limits on what is called your debt to income ratio.
A lender may reject a home refinance application for a multitude of reasons.
Chief among them: Weak credit score and credit history: Lenders don't like to see late payments and collection accounts on a credit report, since they may be indicators of financial irresponsibility.
The risks of refinancing are you may not be able to replace a debt obligation with suitable new debt at a critical point and other factors that are beyond your control like shrinking credit market and rising interest rates that can play a role in your ability to refinance.
Other risks of refinancing are.
You Might Not Break Even.
The Savings Might Not Be Worth The Effort.
Your Monthly Payment Could Increase.
You Could Reduce The Equity In Your Home.
You can sell your house after refinancing immediately or soon or anytime after refinancing, unless the mortgage contract has an owner occupancy clause.
The owner occupancy clause means that you agree to live in the house as a primary residence for an established period of time.
PMI does not always start over when you refinance and refinancing your mortgage can get rid of PMI but your new mortgage balance must be 80 percent of your home's appraised value or lower.
And if you take out a conventional mortgage and you put less than 20 percent down then your mortgage lender will most often add PMI to your monthly payment.
If interest rates have dropped since securing your current mortgage, then refinancing could save you money.
In addition to fetching a lower rate, a mortgage refinance may get rid of PMI when your new mortgage balance is less than 80% of the home value.
You can rid of your PMI or private mortgage insurance by making extra payments towards the principal of the mortgage or also by doing any of the following.
Wait until you qualify for automatic or final termination of PMI.
Request PMI cancellation when mortgage balance reaches 80% .
Pay down your mortgage earlier.
Refinance your mortgage.
Reappraise your home.
Expand or renovate your home to increase its value.
Private mortgage insurance, also called PMI, is a type of mortgage insurance you might be required to pay for if you have a conventional loan.
Like other kinds of mortgage insurance, PMI protects the lender—not you—if you stop making payments on your loan.
If you're current on your mortgage payments, PMI will automatically terminate on the date when your principal balance is scheduled to reach 78% of the original appraised value of your home.
If you choose to use PMI, be sure to talk with your lender about these specific details of your policy.
Home buyers who put at least 20% down don't have to pay PMI, and they'll save on interest over the life of the loan.
Putting 20% down is likely not in your best interest if it would leave you in a compromised financial position with no financial cushion.
To avoid PMI for most loans, you'll need at least 20 percent of the home's purchase price set aside for a down payment.
For example, if you're buying a home for $250,000.00, you need to be able to put down $50,000.00
To get rid of PMI on mortgage.
Wait until you qualify for automatic or final termination of PMI.
Request PMI cancellation when mortgage balance reaches 80% .
Pay down your mortgage earlier.
Refinance your mortgage.
Reappraise your home.
Expand or renovate your home to increase its value.
The PMI which stands for Private Mortgage Insurance must be kept on your mortgage and you have to continue paying the PMI for a period of 2 years or until your home has built up at least 25% equity which usually occurs within 2 to 5 years.
After 5 years of holding the home mortgage you only require 20% equity in your home to be able to stop paying Private Mortgage Insurance.
So expect to have to pay PMI or Private Mortgage Insurance for up to 5 years in most cases.