5 Costly Mortgage Refinancing Mistakes to Avoid
February 17, 2010 by James Williams
Filed under Mortgage Refinance
When you do it right, refinancing your mortgage can have some serious benefits, but, when you don’t take the time to really consider what you’re doing, you could wind up making a mistake that costs you lots of money and could cost you your home. Listed below are five mortgage refinancing mistakes that you should make sure to avoid at all costs.
1: Not Locking In Your Interest Rate With Your Lender
If the recent mortgage crisis in the US has taught us nothing, it should have taught us the importance of making sure to get a good, fixed rate on all mortgages. In addition to this, you need to make sure that you have the rate you’ve been quoted locked in. In other words, even before your lender begins to process your loan, you need to have a guarantee that it won’t change. You might think that you have a good rate, but find out it jumped a couple of points while your loan was in the processing stage. This can make a decent payment go up by a couple of hundred dollars, which can in turn, make your mortgage payments unmanageable for you.
2: Not Shopping For The Best Mortgage Refinancing Deal
When you’re considering refinancing your mortgage, you will quickly discover that there are hundreds of mortgage companies out there. They may all finance your home, but each one is different which is why you need to shop for good rates and some of the different options that you might be looking for with a lender. You need to spend time looking at each company you’re considering and don’t hesitate to ask for the best interest rates that you can get. You are never under any obligation when you refinance your home, so make sure to abandon a company if they are making life tough for you or you feel that you’re not getting what you deserve.
3: Frequent Mortgage Refinancing
One of the mortgage refinancing mistakes that is most commonly made is frequent refinancing on your loan. We all know that refinancing your mortgage is a great way to lower your payments if you can get a lower interest rate, but you shouldn’t do this all the time. Every time you refinance your loan, you will be charged fees and, although these might be tacked on to the end of the mortgage, it will make the balance you owe climb, so consider these and closing costs you may incur. Make sure that you can recoup your closing costs within one to two years to ensure that you are making the best refinancing deal available.
4: Not Knowing At What Point You Will Break Even
It cannot be said enough that refinancing your mortgage will cost you money. You will incur closing costs and you may be subject to other fees. That is why it’s so important to know not only how much it will cost you to refinance your current mortgage, but also be aware of at what point you’re going to be able to break even. The best way to do this is to take your refinancing fees and divide them by the amount of money that you will be saving monthly. This will give you the number of months it will take you to finally break even on your home loan. In other words, you are looking for how long it will take you to be able to truly see savings that you can use.
5: Refinancing Just Because You Can
When you choose to refinance your mortgage, you should take other factors into account and don’t’ just do it because rates are low. You should consider whether you plan to stay in your home for a long term, because if you move before five years, you may have less equity in your home and a refinance will not be worth it for you. You should also consider how long you have left to pay on your current loan. If you’ve been paying for 15 years on a 30 year mortgage, it wouldn’t be wise to get yourself back into a 30 year mortgage, because you are essentially starting over.
Mortgage refinancing can be a wonderful idea and for many people, this works really, really well, but you need to be aware of what is a good financial move when it comes to your mortgage and what’s not such a good move. By taking the time to consider all options and run all numbers, you will likely find that you wind up with a great deal that you can really live with.
