It’s estimated that nearly 18 million American households with a mortgage qualify for a mortgage refinance according to Credit Sesame. That is more than one third of all of the household mortgages in the United States. However, less than 5 million of those households have chosen to exercise their right to refinance their mortgage in recent years, which means that roughly two thirds of the households who qualified did not even try.
What’s more, it is estimated that people are overspending by more than $5,500 each year on their mortgage, simply because they are not carrying the mortgage that best fits their needs. Why have so many Americans neglected this historic opportunity to save money on their mortgage? The Washington Post gives us great insight into why in their recent article: Why did millions of Americans just not bother to refinance?
Simply put, there are myths that, no matter how untrue they are, continue to circulate about refinancing your mortgage, what it takes to qualify for a refinance, and the very process itself. Let’s take a look at some of these myths, as well as try to help set the record straight.
Myth #1: Today’s economic climate makes it too hard to refinance.
One of the biggest myths we hear is that today’s economic climate makes it too hard to refinance. In fact, this is #1 on Daily Finance’s list of the most common myths holding you back from refinancing your mortgage. This, coupled with the distrust that many have in traditional banking institutions, can make the thought of improving your financial situation seem far-fetched.
While it is certainly true that the climate of the American economy and the real estate market changed the way that many choose to spend their money, it has also rebounded to offer a wealth of opportunity for savvy homeowners. Yes, there may be some extra steps to ensure your creditworthiness when you apply, but it is still very possible to refinance your home mortgage.
The bottom line: If you haven’t refinanced your home recently, you are potentially forfeiting considerable savings - money that could be going directly into your pocket. Gen X Finance reminds us that it’s still a tough decision, and is something that should be carefully considered. If you’re still on the fence, the Mortgage Professor offers some great reminders on valid and invalid reasons for not refinancing.
Myth #2: The actual process of refinancing your mortgage is too complicated.
Another common misconception is that refinancing a mortgage is a difficult and daunting task. There are many factors to consider, and some lenders are – naturally - easier to work with than others, but the process does not have to be overwhelming.
Working with the right lender will help tremendously in this process. You can trust their expert advice, and they will work closely with you to analyze the available options and decide which is the best fit for you depending on your unique situation and your goals. For pointers on how to pick the right mortgage lender, the folks at Investopedia.com have put together some valuable advice.
The folks at FamilyShare remind us that it’s not all about the lender, though. In order to have a successful refinance, you’ll need to do some work on your side. Be sure to stay organized, communicate openly with your lender, and meet all deadlines. Our recent blog post on how to prepare to refinance your mortgage is a great place to start!
The bottom line: Working with the right lender can make the refinance process simple and easy to understand, but it’s also up to you to come to the table organized and ready to provide the information and communication your lender will need.
Myth #3: There are better ways to make money, like investing.
When it comes to making money, many people focus strictly on their assets and neglect ways they can utilize their liabilities to save each month. Saving money by improving your credit score or refinancing your mortgage are not always the first strategies that we turn to, but they’re great opportunities! In fact, improving your credit score can improve your refinancing terms substantially. The Everything Finance Blog explains how your credit score is calculated, and the folks at Penny Hoarders give some clever ways that you can improve your score today.
Another part of your financial fitness routine should be frequently examining both your income and your debt, and looking for ways in which you can not only make money, but save it as well. There are plenty of exceptional blogs and resources that can help you with strategies for budgeting and saving money, including Wisebread, The Simple Dollar, and Fiscally Sound to name just a few.
The bottom line: You don’t always have to be investing money to make a return. Improving your credit score, refinancing and finding ways to save can have a great impact on your overall wealth. If you’ve been sitting on the fence about refinancing because you think investing is a better strategy, you should give consideration to the alternative ways to build wealth.
Myth #4: If you were turned down for a refinance before, it is a waste of time to try again now.
Another common misconception about refinancing is that if you were turned down for a refinance before, it’s a waste of time to try again. This can’t be farther from the truth. The folks at Houselogic remind us that there are five things that most often stop a refinance: your home is worth less than your current mortgage, your credit is too low, you can’t document your income, you’re not making enough money, or your home is listed for sale. Many, if not all, of these issues can be overcome with time.
Let’s talk about how to solve some of these issues: We’ve talked before about how to navigate the appraisal process and some of the improvements you can do to your home to increase its value. When it comes to raising your credit, yes – this takes time. However, there is a wealth of excellent “how to” advice from a number of credible sources around the web. We like Magnify Money’s recent post on building credit and The Motley Fool’s advice on changes you can make that will have a quick impact.
If income is the issue or you’re self-employed and have a hard time documenting your income, you might consider this post by realtor.com on refinancing tips for the self-employed.
The bottom line: Refinancing isn’t a one time deal. If you’ve been denied before – or even if you’ve refinanced before and want to do it again – it’s always in your best interest to speak with a lender to determine your ability. Don’t assume you’re out of luck!
At Lenda, we’re shaking up the way that folks refinance their mortgages. Our clients enjoy saving an average of $8,000 in closing costs, as well as a short 45 days of processing time (a leading industry average we’re quite proud of!). Our process is simple, and we offer full transparency throughout the entire refinance process. Get your custom quote in just minutes!