10/14/2010 Planning to refinance your home? There is a lot you need to know. A mortgage refinance can be simple and is almost always beneficial , but there are things that can go wrong. One of these mistakes can ruin your refinance.
1. You might not save money in the long run. When you refinance your home, your goal is to save money in one way or another. Often, a refinance gets you a more favorable interest rate, which reduces your monthly payment. But if you get one of the lowest mortgage rates available in exchange for a longer loan term, you may not save money in the long run. Even with a lower interest rate, a longer loan term means you'll have to pay that interest more often. If you don't do the math right, you may end up paying more money in the end than if you hadn't refinanced.
2. You might not save any money at all. It's possible to refinance your home at a lower rate with a shorter loan term but save no money whatsoever. How? Simple. A refinance is a home loan, and home loans come with closing costs. You will have to pay closing costs when you refinance your mortgage, guaranteed. You will only save money with your refinance if these closing costs are less than the total savings you gain from the lower rate and better terms the refinance gets you. But if you sell your house or refinance again before you can recoup the closing costs, you won't save any money. You'll actually waste money.
3. You might refinance in an up market. This isn't likely to be a problem for anyone right now, since mortgage rates are at historic lows, but it's never wise to refinance when rates are high. This is intuitive. It goes without saying. Wait to refinance until rates are truly low, as they are now. If the market is steady or dipping rapidly up and down, you risk refinancing at a high point, which will reduce your potential savings significantly. You'll probably get a lower rate than you got for your home purchase, but it won't be as low as it could be.
4. You might select the wrong lender. This is probably the biggest mistake you can make when refinancing. Look for the best rates and terms you can find. If you've checked out two or three lenders and think you've found a good one, think again. Talk to at least four or five mortgage professionals and brokers, including your current lender, before you make a decision. This is easier than ever with the internet as a tool. Research everything you can, and when you find a lender you're happy with, keep researching just to make sure. Compare mortgage rates, compare loan terms, and, most importantly, compare closing costs. Select the lender who can save you the most money. That's the point, after all.
