7 Mistakes to Avoid When Refinancing Your Home
When refinancing your home mortgage, be sure you are making the right decision and getting the best option. You can obtain even better benefits by being prepared in advance instead of rushing into a refinance. Avoid these common mistakes when going through the refinance process with your mortgage broker.
1. Not Making Smart Personal Financial Decisions
Begin by preparing yourself financially for the mortgage refinance process. Lenders will be paying close attention to your credit report, and you should be paying close attention to your own income and personal spending. Any changes to your credit, whether with opening a new account or making a major purchase, can negatively impact your chances of getting the best rate on your home mortgage.
2. Overestimating Your Property Value
A common mistake considering the constant rising and falling of home market values, be sure you are fully aware of the value of your home. Your lender will not lend any more than the value of your home appraisal, so be realistic about the current value of your home and how this will affect your refinance.
3. Not Comparing Mortgage Lenders
Always begin by comparing multiple mortgage brokers, as you may find a better rate than with your existing lender. It may seem easier to just work with the same lender, but a refinance is a completely new mortgage, requiring re-filing of all previous documents. After reviewing a few separate and credible options, you will have a better chance of finding the lowest mortgage rate you qualify for.
4. Not Reviewing Good Faith Estimate
Your broker should be able to provide a breakdown of the total costs of your mortgage, which you should be able to match up with what you were told before the application process began. If the lender is unwilling to provide an estimate, usually available within three days of submitting your loan application, you should consider looking elsewhere.
5. Not Doing Your Research
Be sure you take into consideration both interest rates and shorter-term loans. Be sure to make yourself away of lender fees and loan terms, even if the promise of lower interest rates and monthly payments is distracting. Also consider shorter term home loans. Although this may not lower your monthly payment, you can lower the interest paid and amount of time you will be paying the loan.
6. Miscalculating Break-Even Point
Always take into account the money you save by refinancing with the actual cost of refinancing. At a certain point you will reach the “break-even point” when the savings offset the costs of your new loan. Consider whether or not you plan on remaining in your home until this time.
7. Not Submitting Documents on Time
A horrible time to plan a vacation is during the home refinancing process. If your lender is unable to reach you for necessary paperwork, you could hinder the process. Stay available to submit any necessary documents throughout the process, between the initial application and final closing.