With mortgage rates as low as they are, now is good time to look towards refinancing. And many Americans do. But, in their rush to take advantage of all the benefits of refinancing their mortgage, they sometimes make some simple mistakes that they end up regretting in the long run.
Here are some of these mistakes and what you can do to avoid them:
1. Not doing your research
You need to do your own research before you all your lenders. It’s not hard and you already know your credit score, which is important to determine the rate you’ll receive. And it’s also a good idea to see how much your home is worth. You can do this by talking to a realtor or by checking sites like Zillow.com. When all of this is done, you can use a refinance calculator to estimate your new monthly mortgage payment.
2. Not taking care of your credit score
If you still don’t know how important your credit score is and how it can help you, then you probably should not make financial decisions on your own. It’s really important to have a good credit score, especially if you want to refinance. If you have a poor score, then the chances of finding a lender willing to work with you are really, really low. So try to keep your credit score above 640 if you want to be able to find good refinancing options.
And another thing. Lower credit scores also translate into higher mortgage rates. That’s why you should try to avoid making major purchases on credit or opening new credit accounts, as these can also lower your score.
3. Not shopping around
Although it may be convenient to work with your current lender, it’s not always the smartest decision. You need to go out, shop around, look at different lenders and get as many quotes as possible. Just assuming that your current lender will give you a special deal is a mistake. It’s much better to compare your lender’s quotes to from others. Afterwards, if you have something better, you can tell your lender about the offer. He might make you a better deal.
4. Not taking all the costs into account
Most people choose to refinance so they can lower their monthly payments. Although this is a good thing, it could end up costing you more in the long run, especially if you’re not careful. Before you start the refinance process, take a look at your mortgage documents and ask yourself these three questions:
- How much time do I have left on my current mortgage?
- Do I plan to sell my home in the near future?
- Do I have to pay closing costs?
Answering these questions will help you save money, if saving money is what you’re looking for. Just factor in all the costs and then compare them with your refinance offers. You will be able to see if refinancing is the right decision for you.
5. Not thinking that things can go wrong
The refinance process can take up to several months. During this time, a lot of things can go wrong. Be vigilant and don’t be afraid to exercise your right of rescission. When you refinance your mortgage, you have three business days after closing to cancel the deal. Don’t hesitate to do it if you feel that the new deal is not right for you.
It’s a lot better to start the refinance process again and find something you like, then to settle for something that may end up hurting you in the end.
Refinancing is not something to be taken lightly. Although it can offer you many benefits, it can also hurt you if you’re not careful. Make sure that you do your homework and always check everything twice before signing any papers.