When it's time to look at a refinancing agreement for a property, not everyone ends up being a winner. Homeowners who are less savvy about mortgage refinancing and money management may end up getting the short end of the stick. Here are some of the worst pieces of advice that you may hear along the way, and how to avoid it.
Revert to a 30-Year Mortgage
In some mortgage refinancing contracts, you may have the opportunity to choose whether to stick with a current time frame or to stretch the loan out over a much longer period of time.
Stretching a loan out over another 30 years can result in lower down payments, but you'll be paying a lot more over the lifetime of the loan. That's led a lot of experts to recommend sticking with shorter time frames in order to build equity quicker and pay a property off much sooner. As a resource, this article goes into detail about comparing a 15 year and 30 year loan, pointing out the benefits of the shorter time frame. The bottom line is that, with stretching a loan out over decades, you'll be paying extreme amounts of interest over time, and building up your assets very slowly.
Refinance Quickly and Often
A lot of refinancing companies may encourage you to do this, but it's really not in your favor most of the time. Impartial and experienced finance experts will point out that in order to get the best deals, borrowers often have to stay in a home for a year or more before even considering a new refinancing plan.
Ignore Biweekly Payment Options
Some owners who refinance ignore payment options that can help them pay the mortgage off sooner, such as a biweekly payment plan. With a biweekly payment program, you get a convenient opportunity to make additional principal payments that will cut down on your total payout over the entire term of the loan. This resource will show you how to calculate savings from a biweekly payment plan.
Just Sign It - They're All the Same
Another really bad piece of refinancing advice is to just assume that most refinancing deals are really the same at their core. Every individual deal has its own parameters -- for instance, some forbid the early repayment of the mortgage, while others do not. Be smart and read the fine print of the agreement before signing.
Still have questions? Let Lenda help. Lenda is there to give you information on lenders, and help you benefit from interest rate changes and other opportunities. To learn more on how you can refinance today go to lenda.com.