Anytime you see refinance tips, you tend to see a list of things you should be sure to do when refinancing your mortgage. Tips to refinance mortgage loans should also include a list of what not to do. Following is a list of things to avoid when you are considering refinancing.
Do not:
Settle for the first offer
It is always best to shop around. If you do not talk to the competition of the lender who has the loan offer on the table, how will you know what else is available to you? Even if a different lender can cut your interest rate by one-eighth of a point, it can end up saving you thousands of dollars over the life of a loan. Most mortgage refinance tips tailor advice to helping you land only one offer from one lender. Know that if there is one financer willing to take a risk on you, there is more than likely another finance company willing to compete for your business.
Ignore all the other fees beyond the interest rate
Sometimes, one of the major home refinance tips most financial counselors give to home owners is to make sure they are shopping for the lowest interest rate possible. This is sound advice, but it is not the only fee beyond the loan amount itself you should pay attention to. Sometimes the lure is the low interest rate, and while you are excited about that, you tend to ignore high closing costs, loan origination fees, and fees for credit reports. Pay attention to all the details, especially if all the fees seem to be higher when you view the Good Faith Estimate than they were told they would be when you applied for the loan. If you ignore this suspicious shift, it will cost you dearly in the long run.
Get a rate reduction that is not worth your refinance effort
Most financial experts say you should try to get at least three-fourths of a point reduction or a full-point reduction in the annual percentage rate when you are refinancing. Otherwise, your refinancing is not worth the investment because it will take you a much longer time to reach a break-even point. Many tips to refinance your home leave out discussion of the break-even point. Here is what it is: The break-even point is the estimated date when the money you save by refinancing your home equals what it cost you to refinance.
Agree to prepayment penalties or junk fees
Three to four years is a good time to set for a prepayment penalty. If your loan agreement specifies a time longer than that, here is a good refinance tip: it is probably not a good idea to sign it. What if you have to sell the house and pay the mortgage off before a 10-year period that might be tucked into one of the clauses of your loan agreement? This does not put you in a good bargaining position and keeps you trapped. Avoid fees for things like “document preparation,” too. You may not be able to avoid fees for titles or loan origination fees, but something frivolous like document preparation is a padded expense.
Remember that refinance tips are meant as advice and not as a strict guide for you when you are trying to find another loan for your home. Each home owner situation is unique and has to be treated with unique solutions. Make sure that you arm yourself with all the information you can gather about your own situation, and always remember what “not” to do.
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