Monday, March 3, 2014 - Article by: Prospect Financial Group, Inc. -
Refinancing is a big decision, probably one of the biggest financial decisions you will make in your life. If not done right, refinancing can end up costing you more money than it saves you. However, if you refinance correctly and avoid some of the common refinance mistakes, you can end up saving hundreds of thousands of dollars over the life of your loan.
One important refinance mistake not to make is over estimating the value of your home. Many homeowners tend to over-value their homes and while home values have increased over the last year or so, they may not have increased significantly in many areas. If you overestimate your home's value, you may find that actually do not qualify for the refinance once you have the appraisal completed. Make sure to get an accurate estimate of your home's value before beginning the process.
Another thing to take into consideration when refinancing is the current interest rates. If you procrastinate locking in an interest rate in hopes that rates might move lower, you might miss out. As the economy continues to improve, interest rates are likely to rise, and holding off locking can mean that you end up paying a higher rate than desired.
When you are trying to determine if refinancing will save you money, then you need to take all factors into consideration, not just interest rates. Many homeowners forget to include closing costs into their calculation. Determine when you will break even and the savings associated with refinancing will outweigh the costs.
Another mistake people can make when refinancing is not taking into consideration a shorter term loan. For example, many people just simply refinance to another 30-year loan, but in reality a 15-year loan will end up saving you more money. While the monthly payment is higher on a 15-year loan, because you are paying it off in half the time, the interest rate is much lower. If you can afford the higher monthly payments on a 15 year loan, it will end up saving you thousands of dollars by the time you pay it off.
If you are in the process of refinancing or have questions about the refinance process, do not hesitate to contact Prospect Financial Group, Inc. at 858-605-0952.
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