7 Mistakes to Avoid When Refinancing
Right now, everyone is looking to save money, pay off a few credit cards or a car loan. Homeowners have equity built up in their home and can use this equity to refinance their home. The money can be used to pay off debt, add a new room, remodel your home, or help send your child to college. However, before you decide to refinance your home it is important that you understand all the options available to you.
Many people jump into refinancing their homes when interest rates drop. Most homeowners have no idea what to expect when they try to refinance their home. There are 7 very common mistakes that all homeowners make when they refinance their home.
Not Saving Enough Money
When you refinance your home, you need to save enough money to justify refinancing. If you can’t decrease your interest rates by at least .75 to 1%, then there is no need to refinance your home.
Overlooking Closing Costs
Many people have no idea what their closing cost will be when they refinance their home. However, by law, any loan institution has to disclose your closing cost within three days after submitting your application. There are different ways a loan institution can calculate your closing costs. Unfortunately, until your loan details are clear, the closing costs quoted to you are only an estimate. It is necessary when refinancing your home that you are prepared for the worst-case scenario.
Lacking a Reason for Refinancing
Some homeowners refinance their home and never understand why they have done this. The major reason behind refinancing is to lower your interest rates. However, you may choose to refinance your home to consolidate your debt, finance a major purchase, or make home improvements. Before refinancing your home, it is important to talk to your accountant to find out if it is possible to deduct your interest payments from your taxes.
Understand APR Teaser Rates
It is important that you understand APR teaser rates before refinancing your home. There are some mortgage brokers that use APR teaser rates to get your attention. Teaser rates are most commonly found in adjustable-rate mortgages and hybrid ARM's. The teaser rate has a fixed period of time you will pay a certain interest rate on your loan. After the time period the interest rate becomes adjustable. Before signing any loan documents it is important that you fully understand the interest rate for the life of the loan.
Weighing Adjustable Rate Mortgages
Adjustable rate mortgages can be beneficial to some homeowners. However, when refinancing your home it is important that you weigh all the pros and cons of your ARM loan before signing. At first, the ARM can help to minimize your monthly payment, but can cost you more in the long run. Some ARM loans have additional refinancing charges when they adjust the interest rate on the loan. Fully understand the ARM loan, refinancing charges, increased interest rates, and full terms of the loan before signing.
Review Mortgage Broker Services
Many people are unaware of the service a mortgage broker should offer you. When you decide to refinance your home, the process should be accomplished quickly and be hassle-free. Before deciding on your mortgage broker, ask for a list of the services they provide and what their performance guarantees are.
Consider all Available Loan Options
Many people think that there are only a few refinancing loan options available. However, there is more than one plan with different terms and rates. The complex difference in the different loans available can either save or cost you thousands of dollars. It is important to understand the different loan packages before selecting the one that is right for you.
Before signing any documents to refinance your home it is important to know what you are signing. Your mortgage broker should help you understand the difference in the loan options available, fixed or adjustable rate mortgages, and what their services offer. The main objective of refinancing your home is to save on the interest rate you pay each month.
About Sarah Johnston
Enjoying the good old years of retirement. No sorry this isn't me. I just love the picture of my great grandmother and use it on all of my accounts.