Disadvantages of refinancing home debt

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The major disadvantages to refinancing residential debts are the increased finance charges that result from extending the repayment period, the possibility of having to pay points, the additional closing costs, and prepayment penalties on the old mortgages.

The feasibility of refinancing depends on whether the homeowner can obtain a loan at a reasonable rate, usually from a savings bank, a commercial bank, a credit union. Most finance companies and certain mortgage companies do not make residential loans at reasonable rates and terms.

If your existing loan agreement includes a prepayment penalty clause, it could negate the benefits of refinancing, since by refinancing you’re paying off your current loan to open a new one.