In this day and age, nearly all of us are specialists in one thing or another. Where we have proficiency (at our jobs, for instance), we understand some of the silliest mistakes that people make, and we avoid them in cultivating careers and making good impressions. But when it comes to doing a mortgage refinance, a surprising number of people are not immune to face-palm blunders. Here are some of the biggest and most common mistakes that will cost you a lot.
Three Silly Mortgage Refinancing Mistakes to Avoid
1. Refinancing with High Equity
In terms of benefit to the borrower, refinancing is a "low equity game." In other words, it doesn't make much sense to refinance low mortgage balances that you're going to pay off in the short term. The biggest benefits to be reaped from refinancing results over longer periods of time and apply to larger principal balances. Refinancing helps because it allows that large principal to be paid off more effectively with lower interest rates. Don't make the mistake of refinancing later in your loan if it's not needed or beneficial.
2. Lengthening Your Loan
Another big mistake many borrowers make is allowing the lender to take a shorter term loan — such as a 15-year loan that is already at the 7.5 year mark — and stretch it out into something much longer, such as a new 30-year loan. While some lenders may argue that these longer loans offer reduced mortgage payments, they often don't explain how you'll actually end up paying a far higher amount over the 30-year life of the loan. In some cases, even double or triple the original cost of property.
To ensure that you are getting the best deal possible, examine the actual payoff amounts over the entire loan term. Don't be enticed by a lower payment alone.
You may get hundreds of pieces of mail cajoling you to refinance quickly and often. However, savvy borrowers approach refinancing cautiously, and look at the entire menu of costs and fees involved, which can add up to several thousand dollars. They also look at the break even point, which is when you're going to start realizing the benefits of a refinancing deal.
One way to explain this is that in the short term, your savings from refinancing are eaten up by fees and other expenses. Fortunately, you can use a break even calculator to see how long you'll need to stay in the property before you start saving money after refinancing.
When borrowers don't use a break even calculator, they may lose out on saving money. For instance, if they decide to move or sell the property within a year or two after they sign their new mortgage agreement, any potential cost savings are probably lost.
Let Lenda help you to find the best refinancing deals, with less stress and hassle. Lenda specializes in assisting homeowners in understanding the best options and helps homeowners like you find the best refinancing package in today’s lending market. To learn more, download our free ebook on refinancing today.