Avoid These 5 Refinancing Mistakes and Save Thousands of Dollars
There’s a good reason so many people are refinancing their homes right now. Mortgage interest rates are the lowest they’ve been in years! Maybe you’re wondering if it’s time to refinance your loan, too.
If you’re in a good position to refinance, then I certainly recommend it. Getting a lower interest rate can save you thousands of dollars in the long run.
Before you dive in, though, there are several things you should know. I know lenders advertising their refinancing services make it sound as easy as filling out a form and paying less each month. But it’s not quite that simple.
Don’t get me wrong—refinancing doesn’t need to be complicated. Yet I highly recommend keeping your eye out for five common mistakes that could cost you thousands of dollars over the course of the loan. Refinancing can be a great experience if you can avoid making these errors.
Let’s walk through these five mistakes together:
1. Not Shopping Around
Not all loans are structured the same. It’s important to compare your options. Even loans with the same interest rate can have different costs, fees, and terms.
Often, real-estate experts know which lenders offer the best terms. Ask your realtor if they know brokers or lenders they can recommend. I’m sure they do!
2. Shopping for Too Long
Interest rates change quickly, especially in this volatile market, and it’s possible to lose a great interest rate by looking for too long. Try to get no more than three different loan options at the same time. Then choose the best option out of those three to move forward with.
3. Adding Years to Your Repayment
When you’re considering whether to refinance, interest rates shouldn’t be the only deciding factor. Adding years to your loan can actually cause you to lose money instead of save it. After all, payments during the early years of your loan are mostly interest instead of principal.
For example, if you’re 7 years into a 30-year loan, restarting the clock with a new 30-year loan can cost you thousands of dollars. Never refinance with a longer term than your current status.
4. Not Considering Your Job Stability
It’s no secret that the pandemic has created instability in the job market. So consider your employment situation carefully before using precious savings for loan costs.
Also, keep in mind that if you’re moving from a 30-year loan to a 15-year loan, your payment might go up. (You’ll save money in the long run, but your monthly payments will be higher.) Make sure you have the secure income you need to comfortably pay that increase each month.
This is especially important to keep in mind if you recently launched your own business. Lenders often won’t give you a mortgage until you’ve been self-employed for at least two years.
5. Assuming Your Credit is Great
Before reaching out to your broker or lender, check your credit score. You may find you need to make some adjustments to avoid getting an unpleasant surprise at closing.
Here are some tips to boost your credit score:
- Pay your bills (including your credit card bills) on time each month.
- Set up automatic payments so you don’t forget.
- Pay off your debts strategically. (And negotiate a lower interest rate if you can.)
- Make multiple payments per month to keep your credit card balances low.
- If you know someone who is always faithful to pay off their credit cards, ask if you can become an authorized user on their account.
Overall, this is a great time to reduce your mortgage interest rate because rates are low. Just make sure you consider all the aspects of the refinance offer first so you can save as much money as possible.
Thinking of buying a new home or selling your current one? My team would love to help you! Contact us here to find out how to get the best deal possible on your next home.