Refinancing an Exotic Mortgage

Refinancing an Exotic Mortgage?

Were you one of thousands of Americans that got lured into a bad mortgage several years ago? As you can tell by the ever growing number of foreclosures and delinquencies, many people are suffering at the hands of their exotic mortgage. After booming for several years, the housing market has clearly come crashing back down to earth, partially due to all those adjustable rate mortgages that have recently seen rate increases. Most people are just completely unprepared to deal with an interest rate increase, which can sometimes cost them hundreds of dollars more per month. So what do you when your interest rate goes up and you can’t handle the payments? Just refinance the mortgage right?

Not So Fast

While it is entirely possible for most people to refinance their mortgage, exotic or not, it may not always be the best financial decision in the long run. Here are some things to look out for and consider if you’re thinking about refinancing your exotic mortgage.

Perhaps the first thing you should do in deciding whether to refinance your mortgage is to examine prepayment penalties. Many people think they can simply get a low rate on an adjustable loan and then refinance out before the rate changes - lenders obviously know this and account for it with prepayment penalties. Should you refinance within the first couple years of your mortgage, you could be looking at paying a year’s worth of interest in prepayment penalties.
Even though you may have had an easy time getting your original mortgage, lenders won’t be so quick to let you refinance. Expect them to be much more demanding about your credit score, current income, and your home’s value.
You don’t want to go through the process of refinancing your mortgage just to be back in the same situation a few years later. Any temporary relief from refinancing may cost you more down the road so find a lender that can offer you a better mortgage for today and tomorrow.
Finally, you should really sit down and determine a cost/benefit analysis. Refinancing your mortgage will take time and cost money, just like getting your original mortgage. It’s important to figure out how much you’ll really save and if you’re risking another rate increase in the future.