Today's mortgage rates are very low by historical standards. If you're still carrying a high mortgage rate that you obtained years ago, it may be worth seeing if you can save some money by refinancing. But in your rush to put in your refinance application and close the deal, avoid making these five mistakes.
Five Mistakes to Avoid in Refinancing
- Not comparing mortgage lenders. While it may be convenient to refinance with your current mortgage lender, they may not be your best option. While refinancing with your current lender could save you some money on the settlement costs, your mortgage lender may not offer you the lowest mortgage rate you can qualify for.
- Refinancing into a mortgage loan that requires no out-of-pocket fees. Some mortgage lenders may offer no closing costs on refinancing to existing customers. But whenever a lender offers such a deal, be on guard: find out if the closing costs are being incorporated into the monthly mortgage payments.
- Focusing only on the monthly payments. While the chance to lower your monthly payment is certainly an important consideration when deciding whether or not to refinance, it shouldn't be your only consideration. When comparing offers, look at all of the fees involved with refinancing. Run the numbers on different scenarios by changing the loan amount, and looking at the cost with and without upfront points.
- Not exercising your "right of rescission." This means that when you refinance a home loan with a different mortgage lender, you have three business days after closing to cancel the deal. If you get cold feet and want to exercise this right, send a letter stating that you are canceling the refinance via registered mail with a return receipt.
- Avoiding the shortest term you can afford. Many people refinance to lower their monthly payments. But in some cases, it may make sense to refinance into a shorter term than your original mortgage. For example, you may want to switch from a 30-year mortgage to a 15-year mortgage because you'll pay off your home sooner and with less interest paid. However, if you are concerned about your financial situation changing in the not-too-distant future, you could refinance into a 30-year mortgage (with a lower interest rate) and make larger payments as if it were a 15-year loan. This allows you to save money on interest but preserves payment flexibility.
Refinancing is designed to save you some money, but make sure you take the time to explore all your options to get the best deal possible.
