If refinancing your home loan can lead to a shorter mortgage, lower interest rate, or lower monthly payments, it may be a good decision. Refinancing is not always as simple as it may seem. Many homeowners rush into refinancing without seeing the full picture and make some costly mistakes.
Learn how to refinance correctly and avoid these mistakes.
Not Checking Your Credit Score First
Your credit score plays a huge role in the interest rate lenders offer you. If your score has dropped since you got your original loan, you may not get the better rate you hoped for. Always check your credit report before applying. Fix any errors, pay off small debts, and improve your score if needed. You can save a lot of money over the course of your loan by taking this easy action.
Ignoring the Total Costs
A lower monthly payment sounds great—but don’t forget about the fees that come with refinancing. There are closing costs, application fees, and sometimes even penalties for paying off your current loan early. Add everything up and see how long it will take to break even. If you are not planning to stay in the home much longer, refinancing might not be worth it.
Not Shopping Around
Don’t go with the first lender that offers you a deal. Rates and terms can vary widely. Take your time and compare at least three to five lenders. Look at interest rates, closing costs, loan terms, and customer reviews. This bit of research could help you land a much better deal.
Resetting Your Loan Term
Refinancing into a new 30-year mortgage can bring down your monthly payment. But it also means you might pay more interest in the long run. If you have already been paying your current loan for 10 years, refinancing for another 30 years adds back that time. Consider shorter-term loans like 15 or 20 years to avoid starting from scratch.
Overestimating Your Home’s Value
Some homeowners assume their property value has skyrocketed. However, lenders evaluate your home based on stringent standards. The entire process may be disrupted or your loan terms may be impacted if the appraisal is less than anticipated. Do a little research on local home prices and recent sales before you start.
So refinancing your home loan can be a great option, as long as it is done correctly. Getting prepared, understanding your situation, and working with the right mortgage professional are essential.
At Robert A. Mortgages, we help make it easy, clarify, and tailor it to you. With over 30 years of experience, Robert Arquette and his team are dedicated to helping you avoid costly mistakes and secure the best refinancing strategy for your needs. It makes no difference if you wish to lower your monthly payment, tap into equity, or decrease the loan duration.
Let’s connect and make refinancing work for you.
Have questions? Call us.