Mortgage rates are consistently low, with those for a 30-year fixed-rate mortgage falling below 3 percent for the first time in 50 years. The record low refinancing rates have opened the door for many homeowners who want to refinance their existing home loan to reduce their monthly payments, speed up loan repayment or gain access to their own capital.
Before proceeding with refinancing, it is important to know what the common pitfalls are in the process and how to avoid them. Here are some you need to know.
1. Don’t shop around
To make sure you get the lowest eligible rate, it’s essential to take the time to shop and compare prices from multiple lenders. Even if you use a broker, they may be limited to certain lenders.
You can compare credit and refinancing rates by visiting Credible.
EVERYTHING YOU NEED TO KNOW ABOUT MORTGAGE REFINANCE
2. Focus only on the percentage
Many different factors are involved in determining the mortgage interest rate, and one of them is mortgage points. The lender may offer a lower rate to match or beat a competitive bid. But the bank may charge you more in the form of mortgage points to make this happen.
Also, keep in mind that your credit rating is a major factor in determining your rate. So check your credit and consider whether you need to work on improving it before applying.
If you are considering buying a new home or want to refinance your mortgage, use Credible to contact experienced mortgage lenders to compare bills, including rates, point value and costs.
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3. Not all loan costs are checked
Refinancing an existing mortgage involves creating a new loan so you can expect to pay the closing costs. In general, the cost of closing a refinancing will range from 2 to 6 percent of the loan amount.
You can choose to pay these costs out of pocket or turn them into a new loan. If you do not have cash, the second option may sound attractive. But keep in mind that you will pay interest on this additional amount for several years.
Visit Credible to explore refinancing options and associated costs.
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4. Payment of funds for wrong reasons
Cash refinancing allows you to access some of your equity in the form of cash. You can use this money to consolidate debt, buy a divorced spouse out of their share in the home, make renovations, and more.
But if you use it for unnecessary things like a vacation or living beyond your means, it can come back to haunt you.
Also keep in mind that you will be limited in how much you can get in refinancing cash – usually up to 80 percent of the value of the home – so check with lenders first to make sure it can even help resolve the issue. your current problem
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5. Your equilibrium point is not calculated
If you are refinancing for a lower interest rate, it is important to consider how long you plan to stay at home. This is especially important if you are paying for closing out of pocket. For example, if a lower rate can save you $ 120 a month and the cost of closing the loan is $ 4,560, it will take you 38 months to recoup those costs in the form of monthly savings.
If you don’t plan to stay home that long, refinancing will actually cost you money and probably not. Use an online mortgage refinancing calculator to determine your new costs and compare them to the original cost of getting a loan.
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6. Extension of the mortgage
If you make payments on your mortgage for five years, it may make more sense to refinance on a 25-year loan than a 30-year loan. If you refinance with a longer repayment period, it will end up costing you more interest money, even with a reduced interest rate, because you will be making payments for an additional five years.
7. You are trying to pay off the mortgage rates
If you insist on refinancing because you want to wait until interest rates fall further, you may regret it. Trying to determine refinancing rates is like trying to get to the stock market in time – it’s impossible and you can miss a good deal if interest rates rise instead. If now is the right time to refinance for all other reasons, go ahead.
HOW DO YOU GET THE BEST PRICES FOR REFINANCE OF MORTGAGES
Refinancing can be a great way to achieve some of your financial goals, but it’s important to know what you’re up to and how to avoid potential problems that may cost you. If you have questions, visit Credible to contact an experienced loan officer and get an answer.