Refinancing your home loan can sound like an amazing deal, especially for homeowners who took out mortgages when interest rates were significantly higher than the low rates currently available. Because a refinance can result in lower monthly mortgage payments and a better loan structure, it is a great option that homeowners with large loans or loans with high interest rates should consider.
But before starting the refinancing process, it’s important to know about potential pitfalls. Understanding what kinds of mistakes are most commonly made can help you avoid similar mishaps so you can have the best experience possible. Keep your eye out for these 4 mistakes to avoid when you go to refinance your mortgage:
1. Not Doing Your Research
Remember how you were told to do your research and check multiple sources in order to find the best interest rate when you were first looking to take out a home loan? The same advice applies when you’re looking to refinance that mortgage.
Failing to ask around for quotes and information on important aspects of a refinance, like lender fees, could cost you. You must do the same kind of legwork that you did before you purchased your home and go to multiple financial institutions to get quotes on interest rates, fees, and types of loans available. Only by doing this can you compare offers and pick the absolute best one for you.
2. Misunderstanding the Value of Your Home
Be careful to avoid the two ends of this mistake: don’t overestimate or underestimate the value of your home before going in to a lender to refinance.
First, be honest with yourself and understand that the housing market in general took a nosedive over the last few years. It may be recovering – but that doesn’t mean your house has gained value. It may still be worth less than what you paid for it.
Don’t let a lender undervalue your home, either. Many lenders will offer an in-house appraisal, but don’t feel pressured to use their service. It’s perfectly acceptable to seek out a third-party appraiser in an effort to determine the most accurate value of your home.
3. Failing to Come Prepared
There have been many changes to what both lenders and borrowers are expected to be responsible for in the last few years. New mortgage laws have made lenders legally responsible for ensuring potential borrowers can reasonably repay loans. As a result, lenders expect much more information from borrowers to determine whether or not a loan can be made.
Don’t show up to meetings with your lender unprepared. Expect to be able to show proof of your income and assets, tax information, and how much debt you currently have. Lenders may be more strict with their requirements, which in turn may limit your options for a refinance.
If you have questions, contact the lender and ask. Keep in touch and be accessible so that communication is easier. Refinancing can be a long, confusing process. Don’t slow yourself down by failing to understand what is expected on your end, or by not speaking up when you have a question.
4. Trying to Wait for Lower Rates
With the housing market rebounding and the larger economy in the US recovering, interest rates will soon be on the rise. Too many homeowners are making the mistake of hesitating on their refinance in hopes that interest rates will dip even lower – but a stronger economy means higher interest rates, not continuously dropping ones. Take advantage of the low rates that are available now before they rise along with the market!
Union Mortgage has some of the lowest mortgage rates. Apply today and find out how much you could be saving on time and money.
6705 Red Road Suite 508 Coral Gables, FL 33143