Refinancing your mobile home can be a very smart financial decision. However, like any major life choice, it comes with certain pros and cons. For those who are unfamiliar with refinancing, it basically means getting a new loan to replace your current one, usually with the goal of getting better terms.1
When it comes to mobile homes, refinancing comes with lots of benefits — like lower monthly payments or tapping into home equity. That said, it also comes with potential downsides, such as higher upfront costs and the risk of increasing your debt.
If you’re thinking about refinancing your mobile home, you’ll need to have a solid understanding of these pros and cons. Let’s take a closer look below so that you can decide whether or not refinancing your mobile home is the right move.
What is Mobile Home Refinancing?
Mobile homes, which are sometimes called manufactured homes, can be more affordable than traditional houses. However, the mortgage process is a little different. Refinancing these types of homes works the same way as refinancing a regular home in that it lets you either change your loan’s terms or pull money out of your home’s equity.1
There are two common types of mobile home refinancing: rate-and-term refinance and cash-out refinance. Rate-and-term refinancing means you get a new loan with a better interest rate or different loan duration, while cash-out refinancing means you take out money based on your home’s equity to pay for other things (like bills or home improvements).2
The Pros and Cons of Refinancing a Mobile Home
If you’re thinking about refinancing your mobile home, there are some things you’ll need to take into consideration. Here are the pros and cons that come with mobile home refinancing:
Pros
- Lower Monthly Mortgage Payments: One of the main reasons people choose to refinance their mobile home is to lower their monthly payments. This can be done by extending the length of your loan (such as switching from a 15-year to a 30-year mortgage, for example). Doing so spreads out your payments over a longer period of time, which makes each payment smaller. Not only that, but if interest rates have dropped since you first got your loan, refinancing to a lower rate could also reduce your payments. A lower interest rate means you’ll end up paying less in total over the life of the loan.
- Get a Lower Interest Rate: Interest rates can change over time. If rates are lower now than when you first got your mortgage, refinancing might allow you to lock in a lower rate. This would not only lower your monthly payment but could save you a lot of money in interest.1 Switching to a shorter loan term could also result in lower interest rates, though your monthly payment might be higher, so just keep that in mind.
- Cash for Other Expenses: If you’ve built up equity in your mobile home, meaning you’ve paid off a good chunk of the loan, you can use that equity to get cash.3 Once again, this is called a cash-out refinance.2 You can use the money you receive to pay off your debt — or you can use it for big expenses (like home renovations or even medical bills). This is an effective way to borrow against the value of your home without taking out a separate loan.
Cons
- You’ll Have to Pay Closing Costs: When refinancing, you’ll be responsible for paying closing costs, just like when you first bought your home. These costs can range from 3% to 6% of the loan amount and include things like a new appraisal, title search, and legal fees.4 Closing costs can be paid upfront, or you can roll them into your new mortgage.
- You Might Not Get a Better Interest Rate: Interest rates are not always guaranteed to be lower when you refinance a mobile home. If the market interest rates are higher than what you’re currently paying, refinancing might not be the best idea. You could potentially end up with a loan that has worse terms than your original one.
Conclusion
Whether or not refinancing your mobile home is the right decision for you will depend on your current financial situation — not to mention your long-term goals. Before making this decision, you should carefully weigh the pros and cons. We’d also recommend seeking advice from a mortgage company like CIS Home Loans. In order for you to be able to refinance with most mortgage companies, including CIS Home Loans, your mobile home will need to be permanently affixed to the property. Don’t hesitate to contact us today!
Citations:
https://www.rocketmortgage.com/learn/mobile-home-refinance
https://www.investopedia.com/terms/r/rate_and_term_refi.asp
https://www.claytonhomes.com/studio/how-to-build-equity-in-manufactured-homes/
https://www.lendingtree.com/home/refinance/mortgage-refinance-closing-costs/