What are the benefits and risks of mortgage refinancing?

Thus mortgage refinancing in Dubai as some other opportunities can provide the homeowners with numerous benefits but also gives them potential threats they have to meet. Here is some information on the advantages and the risks of the mortgage refinancing.

Benefits of Mortgage Refinancing

  • Reduced Monthly Installment The refinancing option reduces the monthly installments that you have to make in order to pay off your house. In the long run, this is very efficient to access a new loan at a lower interest rate so as to realize huge savings. This can be particularly useful if for instance the interest rates have gone down since you contracted the original mortgage.
  • Cash The use of home equity Cash Out refinancing allows homeowners to obtain money through home equity. This is for home enhancing, paying off bills or any other purposes that may be of importance. It goes a step further to enabling one be able to exchange some of the home value with cash without having to sell the home.
  • Debt Consolidation Refinancing can assist reduce numerous high appeal debts to one low appeal home loan. This makes debt management easy and can help cut the amount of interest that is paid in the long-run.
  • Shorter Loan Term Refinancing allows you to reduce the number of years of the loan meaning you would be paying your home earlier. This can result to reduced interest charges over the repayment period and homeowners’ equity as well would be built faster.
  • Predictable Payments If you currently have an ARM, the refinance means protection from increases in interest rates in the future where you are locked with the fixed rate of payment making your payment degrade predictable each month.

Risks of Mortgage Refinancing

  • Another important aspect of Closing Costs Refinancing is the costs associated with the process which include fee for property valuation, registration fees and other administrative charges. All these costs may be cumulative and have to be balanced against the benefits of a refinance.
  • Overall Liability In most cases, a cash out refi has an impact of upping the amount of the mortgage that you have. However, you get cash now, and you will be owing your home more, which may not be wise if the property declines in value, or if any social upheavals occur to your employment.
  • Longer Repayment Repayment period can be elongated through refinancing hence reducing monthly payment but this will lead to increased interest rate charges. This means that in the long run you may be charged higher amounts that you are unlikely to afford as a client.
  • Prepayment Penalties Certain loans have prepayment penalties that you will be charged in case you decide to pay back before the agreed time. If your current mortgage carries certain penalties then the savings that you will be making by refinancing your mortgage will be greatly eaten up by these penalties.

This means that if the borrower is unable to pay the new mortgage then s/he faces the possibility of foreclosure of his/her home. Most importantly, one must be able to pay for the new payments before going for a refinance.

Analyzing the benefits of refinancing mortgage in Dubai shows that it may be useful Merchant to decrease monthly payments, gained access to cash and paying off many debts simultaneously. But these are the realities that one has to contemplate with the costs and risks that are associated with such infrastructures. These are some tips on what to do when offered a new loan; Determine your financial position, Familiarize yourself with the terms of the new loan and Consult with your mortgage broker.


Quiz: Benefits and Risks of Mortgage Refinancing

Test your knowledge based on 95dubai.com

1. What is a primary benefit of refinancing your mortgage?



2. How can a cash-out refinance benefit homeowners?



3. What is a potential risk of refinancing your mortgage?



4. Why might extending the loan term through refinancing be a disadvantage?



5. What is a benefit of switching from an adjustable-rate mortgage to a fixed-rate mortgage through refinancing?