Don’t regret refinancing because of these mistakes.
Home refinancing mortgage can be a smart financial decision under the right circumstances. You can save money if you can get an affordable new home loan at a lower rate.
But refinancing not always a good idea. And some refinancing mistakes could mean you are saving less than you should – or perhaps even cost you in the long run.
This is why you should watch out for these five big refinancing mistakes.
Start your path to financial success with a bang
Get free access to select products we use to help us meet our financial goals. These fully proven options can be the solution to help boost your credit score, invest more profitably, create an emergency fund, and more.
By submitting your email address, you agree that we will send you monetary tips along with products and services that we believe may be of interest to you. You can unsubscribe at any time. Please read our Privacy statement as well as Terms and Conditions…
The rates, conditions and eligibility requirements for a refinancing loan can vary greatly. When even a small difference in interest rates has a huge impact on the total cost of repayment, you cannot afford not to go shopping.
Don’t feel like you need to use your current lender to refinance. And don’t be limited to local banks. Get several quotes – at least three, and preferably more – from many different refinancing lenders… This way, you can be sure you will get the best deal.
2. Focusing only on monthly payments
When you get your home refinance quote, you may see a monthly payment that is well below what you are paying and will be very happy about it.
But it’s important that you look beyond the monthly cost of your mortgage. You see, you will restart your watch when you refinance. So, if you’ve been paying off your mortgage for a while, a new loan may leave you with longer terms of payment. Stretching out the repayment schedule is often enough to reduce the monthly payments on its own. The problem is that if you make the payments last longer, you will also pay a ton more interest over time.
To decide if refinancing really makes sense, look at your new monthly payments. as well as general interest expenses. If you can reduce both, then you are in great shape.
You may still be in a good position if you can lower your interest rate and repayment time, even if you don’t reduce your monthly payments. In this case, over time, you will pay less and get free of debt faster. But if you’re going to pay more During the entire life of the loan, think twice if such a repayment schedule really makes sense.
3. Don’t do math when you pay off on closed costs.
Refinancing costs money. In fact, closing costs usually range from 2% to 5% of the loan value. Ideally, if you save money on the loan, you will offset the cost of closing the deal over time. But this can take several years.
Find out what your closing costs are and divide by the amount you will save by refinancing each month. This will tell you how long it will take for the savings to be recouped. If you do not plan to stay in your home for at least this time, refinancing may not be the best solution.
4. A missed refinancing opportunity
If you can significantly lower your interest rate and not refinancing, you needlessly raise the cost of your mortgage. If you don’t have a specific reason for not refinancing, such as a plan to move before you break even, why miss the chance to cut your mortgage costs?
5. Refinancing too often
You want to refinance if it saves you money. But there is no point in refinancing also often. Otherwise, you end up constantly paying for closure and never enter the market.
Typically, before refinancing, you will want to see a fairly significant decrease in your interest rate – say, by about 1% or so. A slight decrease in rates is not necessarily a reason for getting a new loan. It can take a long time for a small amount of savings to cover your final expenses and actually work in your favor.