Susie Orman issued an important warning to refinancing borrowers

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Refinancing a home loan can be a really smart financial move. BUT mortgage this is the biggest debt for most people. If you can reduce borrowing costs for such a large debt, you could potentially save tens of thousands of dollars in interest over time.

But refinancing is only smart if you do it right. And when discussing home loan refinancing, personal finance guru Seuss Orman warned that homeowners are doing “huge mistake“It drives her crazy.” So what’s the mistake she says is “so wrong?” This is a simple mistake that many banks encourage borrowers to make.

Suze Orman thinks this refinancing move is “very wrong.”

According to Orman, “The big mistake is that after spending years paying off an existing 30-year mortgage, people will then refinance a new 30-year mortgage.”

Watch when you refinance a mortgageThe default loan option offered by most banks is the new 30-year loan. But most people originally had a mortgage for 30 years. This means that if you don’t refinance until after you spend some time at your home, your billing period will be much longer.

Let’s say you got your initial home loan ten years ago and decided to refinance to take advantage of the new lower loan rate available. The bank can offer you a refinancing loan for 30 years. But it will reset the time to pay off the debt.

Instead of being free of a mortgage in 20 years, as you would if you did not use your current loan, you will be free of a loan in another 30 years. As a result, you will be paying your mortgage for a total of 40 years.

That extra 10 years of interest payments that you added to your home loan could cost you a fortune of extra interest in the long run – even if you managed to lower the interest rate on your existing loan through refinancing.

To avoid this, Orman has a simple rule. Borrowers who refinance do not have to extend the total payback period of their home loan to more than 30 years, including the time already spent on the original loan. So, in the example above, where you refinanced ten years later, you will want to opt for a 20 year refinancing loan instead of a 30 year one.

She now admits that sometimes you have an odd number of years in a loan. For example, if you only pay on your loan for six years, the bank probably won’t give you a 24-year mortgage. But her advice in this situation is to take the closest loan and just make additional payments to make sure you pay off your balance in full within the initial 30-year period.

Homeowners need to take this warning to heart and make sure they don’t make the costly refinancing mistake. While opting for a loan with a lower rate and longer maturity may seem like a good deal if it lowers your monthly payments, it is not necessarily the best move if it keeps you in debt for a longer period and means that you will end up paying a lot. more interest over time.

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