Once again, mortgage rates are on the rise. And it would be wise to take to refinancing your loans before they go even higher. This strategy has always helped people to save serious cash on their mortgages. But still, it doesn’t mean you simply rush to a lender to get a loan.
Refinancing a loan can be a very complicated process. Sometimes, even the errors that seem harmless at the time may end up harming your finances big time. So, before you rush for the seemingly better deals on your loan, it would be wise to take a peep at some of the refinancing mistakes that you might make. To make your work easier, this article has shortlisted some of the mistakes for you. So, let’s begin.
- Not being realistic about the value of your home
Overestimating the overall worth of your home is one sure way of sabotaging the refinancing process even before you get started. Lenders typically require you, the borrower, to have at least 20% equity in the home before they can consider approving your refinancing. Currently, there are dozens of online valuation sites that can help you make an estimate of your home’s worth. Real estate agents can also be of help here.
- Not shopping around
Failing to shop around and exhausting all your options before you make a choice can also have you selling yourself short. Rates may look to still be relatively low across the market which may make you think like shopping around won’t help much. But if you do your calculations just right, it could mean everything considering the amount that you could be saving at the end of the day.
- Choosing the wrong loan term
Many homeowners look at refinancing as getting better rates on their loans. But most homeowners don’t always realize that they can also change the length of their loans during this time. Typically, you can choose any length for the loan ranging from 15 to 30 years. You only need to figure out which loan term makes the most sense when you apply in your situation and take it.
With the longer loan terms, your overall interest will be higher. But the monthly payments that you make during this period will be lower.
Going with shorter loan terms, however, will save you a significant amount on your total interest rates. Plus, you get to pay off your Northcash online installment loans a lot faster. But the monthly payments are a lot higher here.
- Waiting to lock in a specific rate
When shopping for the best refinance loan rate, you may be tempted to hold out for the lowest rate hoping to get a better deal. While this strategy works most of the time, especially if you have done your homework on how the market flows, it can also turn against you. The market can’t always be 100% predictable. And you never really know which side it’s going to go the next minute, hour, or so. You could end up missing out on the best deals should the market start to climb instead. So, choosing to leave your lender hanging for a long period hoping for the best rates may end up turning in their favor instead. To avoid this, ensure you lock in the rate that you are comfortable with immediately. This is the best way to safeguard your rates even if they go up.
- Forgetting about closing costs
Some homeowners always fall into this trap when it’s finally time to close the loan. It is vital to note that you will have to cough up some cash at this time. The loan origination fee itself can run for up to several thousands of dollars. Then there are the loan application fees, the appraisal fees, attorney fees, and title fees. Overall, you should be looking at a significant amount of change. You may also go for the no-closing cost option but sometimes, they may have you paying more over time.