Common Mortgage Refinancing Mistakes to Avoid When Choosing Lower Interest Rate

Wednesday, July 1st, 2020

Financing for your dream home can be challenging, especially if you are a first time home buyer  with low credit. After all, buying a home is a huge financial investment - one that requires a huge amount of your hard earned money. If you find yourself stuck in a mortgage situation that is stressing you out, you may consider refinancing which is not as scary as it sounds if you familiarize yourself with the term.  Mortgage refinancing can be a safe and sound way to lower your monthly payments and reduce financial burden even if you have poor credit.

What Does Mortgage Refinancing Mean?

Refinancing your mortgage loan is simply taking a new loan under different terms to repay your original loan.  With mortgage refinancing, you are choosing a new loan so you have complete freedom to select from different types of mortgage loans. For example, if your previous mortgage loan was variable rate, you can choose a fixed rate.

Although refinancing mortgage may feel like an attractive option to give you financial relief, without prior knowledge, you can easily find yourself in an overburdened situation similar to out of the boiling water and into the frying pan. So here are some common refinancing mistakes to avoid when you want to choose a lower interest rate.

Not shopping around for interest rates

With interest rates at an all-time low, you might think every lender is giving similar low rate interest rates. This might tempt you to go with the first lender you see. But honestly, this is a lazy refinancing mistake you don’t want to make. Even a 0.1% rate difference matters when you add up all the payments, so do your research thoroughly and compare lenders. As a rule of thumb choose and compare at least 5 and see their terms and conditions. Do not simply settle with your current lender because you already know them.

Searching for zero interest rate mortgage

You might have seen one of those click bait facebook ads with the headlines zero interest mortgage rate for your home loan but be realistic when shopping around. Remember nothing in this world is for free. So if you keep searching for the zero interest rate mortgage for refinancing your home, you might find yourself chasing a never ending mirage. So look for realistic interest rates when shopping.

Not having a complete application

When you are refinancing into lower interest rate with lower than average credit, it can be a challenging endeavour so it is crucial to have all the documents in hand before seeing a lender. Handing in an incomplete application with a low credit score will not improve your case. So ensure you have all the necessary documents like pay stubs, prior year’s tax documents, and any other supporting information you need. For instance, if you are about to get a raise or promotion, have a supporting document that shows the change in your payscale. Job related information can also augment your chances of refinancing as they show security. Remember it is better to have too much information than not enough when it comes to negotiating a better mortgage rate.

Not considering mortgage closing costs

When you want to refinance your mortgage, you are essentially undertaking a new loan so you must be aware of all the associate costs such as loan application fees, appraisal fee, mortgage origination fee and so on. The mortgage closing costs typically will cost you about 2% to 5% of your loan amount. If you are unable or unwilling to pay your closing costs upfront, you can have your lender cover some of the expenses; however, you'll be given a slightly higher mortgage rate. Make sure you discuss in detail all the terms and conditions and any hidden costs to avoid any unpleasant surprises during closing.

Taking too long to decide

Financial markets are constantly evolving, and so are mortgage rates. So it is best that you do not take too long before making a decision and miss out on a great mortage rate. The best tip to follow is that if the number makes sense to you, lock the rate. Waiting for the rates to go down can back fire heavily and is not worth the risk. However, during these times, the mortgage application processing can take some time, so be mentally prepared to be patient. Your lender will appreciate it.

Some other things to be aware of when refinancing your mortgage includes:

Making sure you have build home equity The interest rates along with closing costs prove to be favourable Your overall monthly payments are reduced The tenure for loan repayment has reduced and not increased

Bottom Line

Refinancing your mortgage can be a great move for you and lift off some of the pressure you may feel from your current mortgage. It can reduce your interest rate and shorten loan tenure. With these tips and the right guidance, do not hesitate to make the refinancing decision if you are plunged in financial stress.

Although lucky arul homes do not arrange mortgage, we can help you with making sound financial decision if you are rethinking the purchase or sell of your home. For any real estate service or consultation feel free to call us anytime at 4165189782 or send an email to luckyarulhomes@gmail.com