Due to the fact that the interest rates have been reaching record lows, many families have begun to look into refinancing to facilitate their financial goals. What various people don’t
realize is that there are several major mistakes that people commonly make.
Don’t pay too much in closing costs when there are other options
available. Look into a variety of different types of lenders before deciding on
which one to use. To help find the right fit for you, you should consider a big
national bank, a smaller more local or regional bank, a credit union, and/or a
mortgage broker. Shop around and compare their rates and fees.
Make sure you understand the reasoning behind why to refinance. There are three core reasons to refinance:
!. to lower your interest rates
2. to lower your monthly payments
3. to shorten the loan term
For it to be worthwhile for you to refinance it should accomplish at least two of these, but if its doing all three fantastic!
Don’t be afraid of a shorter loan term. Although it may increase your monthly payment a little bit, it can save you thousands throughout the course of your mortgage. The
difference you’d be paying in interest over 30 years versus only 10-15 years is
Keep a wary eye out for prepayment penalties. Some lenders have prepayments due in case you want to pay off your loan early. You must weigh these out carefully because some of these penalties could actually cost you more than the savings you’ll get from refinancing.
Finally, beware of repeatedly refinancing. The rates have been dropping and are at a 50-year low right now. If you attempt to refinance every time the rates drop, you could very
well end up paying more in prepayment penalties and closing costs than you’re saving on the interest rates. Remember that the timing of a refinance is a gamble. You could refinance now and have the rates continue to drop, or you could wait but the rates may go back up.