Mortgage refinancing can be a great decision for some people, but it can have a dark side if consumers don't look before they leap. It's a great idea for homeowners looking to lower interest rates, especially for people who took on adjustable rate mortgages during the ridiculously low rates a few years ago. Their once-low rates are climbing, and it's time to lock in something steadier.



Using a refinance to roll all debt into one loan may seem like a fantastic way to streamline personal finances, but this can prove disastrous if there isn't a serious change in spending behavior. Sure, the credit cards are all technically paid off, but the balance still exists and it's attached to the roof over your head. Not being able to make payments on credit cards results in annoying phone calls from creditors, but not being able to make mortgage payments results in foreclosure. Even worse, if the temptation to use credit cards proves irresistible then a person can wind up right back where there started, with maxed out credit card debt and an even bigger mortgage payment.

Beware the cash-out refinance. It may seem like a brilliant idea to take a little extra cash out on home equity, but it is important to realize that home values can go up or down. If a home is worth $200k during a real estate boom it may eventually be worth something more like $150k when the bubble bursts, and this leads some people to discover they owe more than their home is worth. Woe, fleeting equity.

Don't forget that a refinance is a whole new loan, and therefore that means all new paperwork and closing costs. Those closing fees that were so annoying in the original purchase will again rear their ugly head and although a reputable company will not charge junk fees, some fees are unavoidable. All financial decisions need to be approached with caution, but when dealing with a home a person needs to be doubly cautious. Equity should be thought of less as a cash-cow and more as an emergency safety net.