Common Mortgage Refinancing Mistakes You Should Avoid

Mortgage interest rates are at an all-time low. This means that homeowners can save a lot of money by refinancing their home loans. Here are a few expert-approved tips on how to refinance your mortgage the right way.

Shop Around

Check out the competition. Mortgage pricing is complicated, and small percentage differences can save you thousands of dollars. Check out various rates, terms, and fees offered by different lenders. Take your time and find your best deal.

Don’t Fixate on The Rate

Look beyond the interest rate. Closing costs can vary widely, and often a seemingly low rate can hide some unusually high closing fees. Get all the details on loan origination fees, points, and all other fees before applying for the loan. This is also an excellent time to watch for red flags.

Increase Savings

Top experts agree that to make refinancing worthwhile, you need to knock at least three-quarters or a full percent off of your current rate. It is also true that high-end homes can justify a smaller rate reduction than more modestly priced ones as the savings you get are much more. That said, if you plan to stay in the house for a long time, then even a slight reduction can prove worth your while.

Stop Waiting for the “Best” Time

When the interest rates are low, jump in. If you are greedy and try to wait for the perfect low rate, you might miss it entirely.

Avoid Refinancing Too Often

Refinancing costs money, and closing costs can range anywhere between 3-6 percent of the loan balance. So, for refinancing to make practical sense, you need to save enough in interest to cover your closing costs, which can be difficult if you refinance too often.

Understand the Fine Print

Some unscrupulous lenders may try to add several fees to generate extra income. Also, watch for the prepayment penalty, particularly if it still applies after more than 3-5 years. Look over your Good Faith Estimate carefully before you sign up for anything.

Finally, stop borrowing against your home equity or extending your loan. The first one can leave you vulnerable should prices drop, while the second could cost you more in the long run.