Mortgage Refinancing - The Good, the Bad and the Ugly

Refinancing your mortgage can be a great idea, but like so many other financial vehicles people misunderstand the real purpose and end up getting caught short financially. For the majority of us, our houses are our greatest assets and represents our largest financial investment. Therefore it is really important that you protect this investment at all costs.

When you refinance your mortgage you effectively borrow against the security of your mortgage. What this means in layman's terms is that you are putting your house at risk as you are using it as "collateral" for the mortgage. There is no need to panic though as this can be a great way to finance certain things. However, if you use it foolishly it can go bad and even ugly. Lets quickly look at that.

The Good

Using your existing mortgage to borrow against can give you a lot f financial leverage and its probably the quickest way to buy more real estate. Many do this when they climb the property ladder as one property can be used to secure a loan for the next and before you know it you have a large property portfolio. Refinancing in not just a way to get an additional loan but it can also be a great way to reduce your monthly payments on your existing mortgage.

The Bad

The bad side of re mortgaging is something that way too many people are doing and that is to use this additional money to buy luxuries or go on a holiday. This is what can commonly be described as a "bad loan" as the money won't buy you an asset.

The Ugly

The ugly side of refinancing happens when you participate too much in "the bad" or when your renegotiate your mortgage terms to a point where you cannot make the payments. This is when the worse can happen since your home is on the line. In many cases you can lose your home which is why you need to be very diligent and smart when you do refinance. There's always risks involved.

See my blog for more great mortgage refinancing tips and learn more about the best Florida refi deals.