Top Five Mistakes When Refinancing
There are many reasons borrowers make mistakes when they refinance their homes. Poor decisions in a refinance can be a costly error, it can mean paying fees, incurring unwanted debt and excessive interest when a less expensive home loan alternative was available. In light of how much information is available on mortgage programs, the availability of mortgage calculators for payment assistance and self help resources it’s startling the number of unfortunate judgments that are executed regarding someone’s home and mortgage loan. The wrong mortgage rate is not the number one mistake in home loan refinancing.
1.) The number one mistake is not understanding all of the terms of the new mortgage loan. Most consumers stuck with adjustable rate loans with high interest rates rushed into the home loan and failed to understand the mortgage terms. Make sure you fully understand the cost, mortgage rate, length of the loan and any penalties for early payment. Understand the terms of the new home loan and do the math on what the new payments will be, the loan amount and how long it will be to pay it off.
2.) The second most common error is to choose a refinance for the wrong reasons. If you are getting a refinance for cash back understand why you are taking out the cash. If you extract equity in your home for normal consumption perhaps the problem is your own personal budget. A refinance generally involves a longer term or greater loan amount then you presently have. If the funds of this refinance are not used prudently you are only going further into debt without much benefit. Perhaps it is possible to repair your credit situation and budget without the mortgage refinance.
3.) Not shopping smart is the number three problem. If a potential mortgage loan applicant obtains the bulk of their information in writing, this problem can often be ameliorated. Comparing the good faith estimates of the mortgage lender is a good starting point. Compare truth in lending notices. Talk to more than one source for your home loan request. Though this mistake sounds repetitive, the issue here is, a borrower taking a refinance that may very well be a good mortgage loan product but the borrower is saddled with a higher than market mortgage rate and high costs by not thoroughly shopping.
4.) Not considering the other options available. The most frequent problem here is getting cash back for short term needs. Though this may be a necessity consider other options such as budgeting, personal loans, or a home equity loan.
5.) Lastly, getting a refinance to solve a budget problem not a mortgage problem. Seeking a reduced mortgage loan payment without understanding you may be taking a negative amortization adjustable rate mortgage is simply postponing some financial housekeeping. Mortgage debt is harder to repay, don’t solve lifestyle problem by placing more debt on your home.
Always, research the terms, benefits, and costs of any mortgage transaction. Never rush into a home loan. If you are not completely happy with your choices or the information you are getting; breathe, wait and start the research process all over again. A mortgage company is in the service business. Make them serve you. Shop smart and revive the best mortgage rates and terms to fit your needs.