With interest rates as low as they are, now is a really good time to refinance your mortgage. But many Americans are not doing it. And, in many cases, their decisions are based on one or more refinancing myths.
Thanks to the internet, these myths have spread really far, really fast, and, unfortunately, they’re causing a lot of harm. They’re preventing people from taking advantage of the low rates and making them miss out on opportunities that they might not meet with again in the near future. Below you will find a list of the most common refinancing myths currently out there. If you’re thinking of refinancing your mortgage, you should definitely read it.
1. You need to have at least 20% equity in your home if you want to refinance
Lenders would love for you to have 20% or more equity in your home, but that doesn’t mean that they won’t do business with you if you don’t. There are some programs out there that have been created with the sole mission to help homeowners with less equity in their homes. The Home Affordable Refinance Program, for example, was launched to help homeowners who ended up underwater or near underwater on their mortgages. It has no limit on negative equity for mortgages up to 30 years.
2. You can’t refinance again if you’ve been turned down in the past
Heraclitus of Ephesus, a Greek philosopher, once said that change is the only constant in life. He was right. Just because you were unlucky at some point and your refinancing application was turned down, it doesn’t mean that things can’t change for the better. And remember that you can now use the HARP program that I mentioned above. It will help you, no matter how bad your financial state is. But, if you plan to refinance your mortgage, hurry up! The program is scheduled to end on December 31, 2016.
3. Since interest rates are already set, it’s not worth shopping around
The Federal Reserve set the current interest rates, but that doesn’t mean that all financing deals are the same. Fees vary from lender to lender, and there are also closing costs and other things to consider. If you plan to refinance, you absolutely need to shop around. It’s the only way to find the best deal for you. Otherwise, you could be throwing away a lot of money.
4. You need a lot of spare cash if you want to refinance
This myth is not completely false. You do need to pay out of your own pocket for things such as appraisals or closing costs. But, if you have enough equity in your home to satisfy your lender, it won’t be a problem. Some lenders will even be happy to include these up-front expenses into the loan, if you don’t have the cash, just to get your business.
5. It’s not a good idea to refinance your mortgage
When you refinance, you get a loan. Thus, you also get all the benefits and disadvantages that come with a loan. So, although refinancing includes broker fees, and appraisal costs, and other costs, it can also be a lot of help. It can reduce your monthly mortgage payments, shorten your loan term, improve cash flow and much more. It all depends on your needs.