Posted On April 09, 2020
Many homeowners are considering a mortgage refinance because they have heard about “historically low interest” rates. Before refinancing your home loan, there are numerous factors to consider besides the lower interest rate. Are you trying to take cash out? Has anything changed significantly in your financial history since you originally financed your home? How much lower would your payment actually be?
When you’re ready to move ahead with a refinance, avoid these potentially costly mistakes:
Looking Only at Interest Rates
Many people start considering a refinance when they hear about interest rates dropping. While a lower interest rate could lower your monthly mortgage payment, there are other factors that will influence your particular interest rate. Interest rates may be dropping, but are they lower than the rate you financed your home with? Has your credit score decreased since you originally financed your home? Do you have enough savings to cover closing costs?
Remember, a refinance is a new loan origination. Your lender will look at your credit score and you will have to pay closing costs. Before you commit to a refinance, it’s best to compare your current interest rate with today’s interest rates, review how your credit score has changed, and make sure you can cover the closing costs.
Not Shopping Around Effectively
If you choose to shop around, make sure you’re giving each lender the same information. One lender may quote you at a lower rate, because they haven’t reviewed your full financial picture. If you’re looking for an “apples-to-apples” comparison give all the lenders the same apples!
Thinking a “No-Cost Loan” Has No Costs
With a “no-cost loan”, instead of paying the closing costs upfront, they will be charged as you repay the loan. If you choose a “no-cost loan,” you may end up with a monthly mortgage payment close to what you’re already paying – or higher. It’s important to compare everything when shopping for a refinance, and review whether or not financing the closing costs will save you any money.
You should always talk to a mortgage lender to map out your financial goals before committing to a mortgage refinance. We offer preapprovals online and over the phone so you can get started from the comfort and safety of your home.