REFINANCE YOUR LOAN??? OR NOT!!!
I'm kind of old fashioned. Now I never thought I would be admitting that. However, I never did consider refinancing my home mortgage unless I saved 1.5% - 2.0% on my mortgage interest rate. The last few years, actually 5 - 10 years, I've known quite a few people refinancing every few years. I know I'm kind of naive...but I didn't think it was very smart refinancing only to save maybe ½% - 1.0% on their interest rate. Besides that, every time they refinanced they went back to a 30 year loan. I never realized they were all taking out $$$$ just because the value of their home had gone up. That doesn't make any more sense than withdrawing most of your saving account just because you were able to save $75,000 over the last few years. This is a BIG part of the real estate loan problems we are facing today. It was not just the purchases with 0% - 5% down payment, it was also caused by many, many people taking $25,000, $50,000 or much, much more to buy cars, boats, motor cycles, pay off credit cards and thousands of other things. They put everything on their mortgage debt, then went out and bought more "stuff" on credit cards and other high interest rate purchases. Whether the value of their home went up or not, this had to lead to a crash. OUCH! Bad enough what went on with all the sub-prime loans that went sour...Taking out all the equity of your home had to end up a total losing proposition. From what I see, about 25% of the foreclosures in our area were caused by people taking out all the equity they had in their home time and time again. Then the value dropped...oops! Wouldn't want to pay back $400,000 to my lender when my home is only worth $275,000.
One lady I worked for had bought a home in NW Reno for about $250,000. She then invested another $50,000 renovating the home and hoped to sell it for about $340,000. But, the market dropped during the time she was remodeling the home. Without going into detail, she borrowed about $100,000 on her personal residence to close the transaction when we sold the investment property for about $225,000. She never even considered letting the lender have the home back. Wow! That is a person has character. That is the kind of values my parents taught me. I hope I never have to make a decision like that...That is a cause for some real "soul searching".
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