7 common mistakes when refinancing into a low mortgage rate

Maximize your mortgage refinance benefits by avoiding these pitfalls.

Mortgage rates are at an all-time low, with a 30-year fixed-rate mortgage falling below 3 percent for the first time in 50 years. Record low refinancing rateshave accordingly opened the doors for many homeowners to refinance their existing home loan to reduce their monthly payments, expedite their loan repayments or gain access to their home equity.

Before proceeding to a refinanceHowever, it is important to know what the most common pitfalls in this process are and how to avoid them. Here are a few to consider.

1. Don’t shop

To make sure you’re getting the lowest interest rate you qualify for, it’s important that you take the time to shop around and compare interest rates from multiple lenders. Even if you use a broker, these may be limited to certain lenders.

You can Compare lenders and refinance rates by visiting Credible.


2. Focus only on the rate

There are many different factors that go into determining your mortgage interest rate, and one of them is the mortgage points. A lender may offer a lower interest rate to match or beat a competing offer. But the bank may charge you more in terms of mortgage points to make this happen.

Also remember that your credit rating is an important factor in determining your interest rate. So, before you apply, check your credit history and see if you should work on improving it.

If you are considering buying a new home or want to refinance your mortgage, Use Credible to connect with experienced mortgage lenders to compare accounts, including tariffs, point value and costs.


3. Don’t check all borrowing costs

Refinancing your existing mortgage loan involves creating a new loan so you can expect closing costs. Generally, the closing cost of a refinance is between 2 and 6 percent of the loan amount.

You can pay these costs out of pocket or include them in the new loan. If you’re short on cash, the second option might sound tempting. However, keep in mind that you will pay interest for several years on this additional amount.

Visit credible Explore refinancing options and the costs involved.


4. Payouts for the Wrong Reasons

A payout refinance gives you access to some the equity of your home in the form of cash. You can use this money to consolidate debt, buy a divorced spouse from their share of the house, do renovations, and more.

But if you use it for unnecessary things like taking a vacation or living beyond your means, it might haunt you.

Also, keep in mind that with a payout refinance, you’re limited — typically up to 80 percent of the home’s value — so check with lenders first to make sure it may even help solve your current problem.


5. Not calculating your breakeven point

When refinancing for a lower interest rate, it’s important to consider how long you plan to stay in the home. This is especially the case when you are pay closing costs out of the bag. For example, if you can save $120 a month with a lower interest rate and the closing cost of the loan is $4,560, it will take you 38 months to recoup that cost in monthly savings.

If you don’t plan to stay indoors that long, refinancing will actually cost you money and probably isn’t worth it. use one Online Mortgage Refinance Calculator to determine your new cost and compare it to the upfront cost of taking out the loan.

Mortgage rates near record lows – why refinancing is a good idea

6. Extension of your mortgage

If you’ve been making payments on your mortgage loan for five years, refinancing it into a 25-year loan may make more sense than a 25-year loan 30 year loan. If you refinance with a longer term, it will ultimately cost you more money in interest costs, even with a reduced interest rate, because you are paying five years longer.

7. Trying to time mortgage rates

If you wait to refinance because you want to wait The courses continue to decline, you may regret it. Trying to time refinancing rates is like trying to time the stock market — it’s impossible, and you could end up missing out on a good deal if rates go up instead. If, for all of your other reasons, now is the right time to refinance, do it.


The final result

Refinancing can be a great way to achieve some of your financial goals, but it’s important to know what you’re getting yourself into and how to avoid potential problems that can cost you. If you have questions, Visit Credible to connect with an experienced loan officer and get them answered.

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