09/13/2010 If you've considered getting a home loan refinance, you've probably heard some of these myths spoken before.
1. Interest rates have hit bottom and are about to climb upward again. Refinance immediately!
This advice is sketchy at best. Why? Simple. No one knows what will happen to interest rates next. Experts make highly educated guesses, but at the end of the day, nobody knows for sure. If someone tells you that interest rates are about to go up, beyond a doubt, take it with a grain of salt. Recently, experts have predicted that interest rates will actually continue to decrease for the next five months or so. Beware of this myth. Don't let someone hustle you into a mortgage that isn't right for you.
2. If you don't plan to remain in your home for at least five more years, don't refinance.
This one has some merit. When you take out a mortgage or loan of any kind, you pay closing costs. Certain loans, like the FHA mortgage and the VA home loan, come with minimal or no closing costs, but for the most part, you have to pay if you want to take out a loan. Traditional wisdom says that a short-term refinance isn't worth the cost of closing the deal.
This is true in some cases. But as we've already mentioned, there are at least two loan types that make it worthwhile to refinance into a better mortgage. You'll have to evaluate your situation for yourself. It's likely that five years is more than enough time to recoup the closing costs through added savings.
3. You can't refinance if you've been through bankruptcy.
This simply isn't true. Bankruptcy can severely damage your credit score, and a damaged credit score will prevent you from taking advantage of the best mortgage rates, but you can still pursue a mortgage refinance. Depending on the terms of your bankruptcy, you may have to wait several years before you can apply for a loan. Still, many homeowners who have been through bankruptcy have successfully refinanced their mortgages within just a few years. Don't give up simply because you've been through some financial hardship.
4. Stick to fixed-rate mortgages when you refinance.
This question is much like the previous question. Fixed-rate mortgages are beneficial because your rate will never increase. However, the starting rates for such mortgages are typically much higher than the starting rates for adjustable-rate mortgages. Adjustable rate mortgages usually come at a temporarily "fixed" low rate for a set period of time, often five to seven years. After this period, the rates will likely increase.
If you plan to sell your home within the initial low rate period, however, an adjustable-rate mortgage is a perfectly good choice. It's actually a better choice than a fixed-rate mortgage, as it will save you more money over the short term.
5. Your lender deserves your trust.
Be careful here. Unless you know your lender personally, treat him or her the way you would treat any other business professional. Be friendly, be respectful, be polite, but don't assume that he or she is trustworthy. Your lender needs to earn your trust before you offer it wholeheartedly.
