Even as your mortgage rate shoots up, know that you still have the option of getting rid of your existing mortgage for a better one. But, it is critical to understand that you can ruin your chances of better refinance mortgage rates by committing a seemingly simple error. Here are three refinance mistakes you should avoid:
Mistake No.1 – Not choosing the best loan term for you
For the majority of homeowners, refinancing is an option to obtain a better mortgage rate. However, don’t forget that it’s also a great chance to modify the length of your mortgage, either 15, 20, or 30 years. A longer term equals lower monthly payments, but higher interest rates. On the other hand, a shorter term equals higher monthly rates, but lower interest rates. Know what loan term is best for your specific requirements.
Mistake No. 2 – Forgetting about refinancing fees and costs
Remember that refinancing is ultimately a service that will cost you money, so you must consider its price to determine if your presumed savings really outweigh the costs. You should factor in the fees of application, appraisal, required home inspection, loan origination (with 10% down payment), as well as your points which is typically 0 to 3% of the amount of your loan. Also, check if there are other associated costs, since this will differ depending on the particular situation, lender, and location.
Mistake No. 3 – Not looking around
If you’re simply settling with current lender for refinancing without looking around for other points of references, you might be passing up on better refinance mortgage rates. With mortgage rates currently at the lower end, it might seem trivial to look around. But, it can mean a great deal of savings for you.
Admittedly, it is common and somewhat understandable that you would want to just stick with your current mortgage rate than experience the anxiety and stress that come with the refinancing process. But, if you get all your affairs in order—do the paperwork, shop around, and fix your credit rating, among others—you can possibly obtain the best refinance deal available to you.