Mortgage Refinancing Mistakes to Avoid
For many adjustable-rate mortgage holders, now is the ideal time to refinance. This makes sense, given how high rates could soar in the future.
But consider the following pitfalls before you make such a decision…
Mistake #1: Waiting for lower interest rates.
Mortgage rates are notoriously unpredictable. If rates are attractive, consider refinancing. If you do it right, and rates go down again later, you can always refinance once more. If they go down substantially before you finalize the loan, you can always change mortgage brokers.
But in the end, if rates sky-rocket, you’ll be thankful you locked that initial rate in.
Mistake #2: Not shopping around enough with local mortgage bankers/brokers.
Be wary of national mortgage shopping sites. They may sound attractive because you enjoy mortgage lenders from across the nation competing for your business, but be remember:
Any lender other than a mortgage lender who is familiar with lending in your home state will not be aware of local practices - and that could cost you in numerous ways. It might not only cost you that lower interest rate, but depending on your other circumstances, it could actually cause you to miss a window of opportunity.
Mistake #3: Not looking at the whole picture.
If you’ve been paying your mortgage for several years, the amount saved every month by refinancing might not save as much as you think. In fact, it usually costs far more than individuals realize.
In other words, if you’re 10 years into your mortgage loan, refinancing your home loan would cause you to start over on the repayment of that debt. Obviously, it might be great to save some money after refinancing, but once you refinance the loan you’ve been paying on for 10 years, you’ll be paying off that loan for an additional decade.
That could really hurt.
It may seem great that you’re lowering your $1200 monthly payment by $100, but when you factor in the extra 120 payments of $1100 that you’ll have after refinancing, you’ll find that your “$100 monthly savings” will actually cost an extra $108,000 over the life of the loan.
Be sure to get a “good faith estimate” and “Truth in Lending statement” from your mortgage broker before jumping into a new loan that could cost thousands of dollars (if not hundreds of thousands) over the life of your new mortgage.