Refinancing your home is a big decision. It can mean the difference between buying a car, paying for college or taking a vacation. And while it’s tempting to take out a new loan that offers lower interest rates and fees, it’s also wise to weigh all of your options before making that final decision. That way, you’ll know how much money you can save without risking anything in return.
The following are five dos and don’ts for avoiding common mortgage refinancing mistakes:
What is Mortgage Refinance?
Mortgage refinancing denotes taking out a new loan to pay off an existing one. It’s one of the most effective ways for homeowners to lower monthly payments and consolidate debt, but it can also be an expensive mistake if not done carefully.
According to Investopedia, “Mortgage refinancing is the process of taking out a new loan on your home to replace your current mortgage with a better rate or repayment plan. There are many reasons why you might want to do this, including reducing your monthly payment or dodging private mortgage insurance (PMI).
With mortgages refinancing, you can refinance home loans and get a better interest rate or lower payments. According to professionals at SoFi, “refinancing could help you save money over the lifetime of your mortgage.” If you have been paying on an old mortgage for several years and are nearing retirement age, you may want to consider refinancing into a shorter-term mortgage so that the money can be used for other investments. This would reduce your monthly payment, but it could also increase your overall cost over time because of higher interest rates on shorter-term loans.
There are many reasons why people choose to refinance their homes; they include:
- Lowering monthly payments by extending the term and reducing interest rates
- Paying off credit card debt with high interest rates
5 Dos to avoid Mortgage Refinance Mistakes
Here are five things you can do to avoid common mortgage refinancing mistakes:
- Do your research.
- Get pre-approved.
- Make sure you have a good credit score.
- Make sure you have enough cash to pay closing costs.
- Do not take out a loan with a higher interest rate than the one you are refinancing.
5 Don’ts to avoid Mortgage Refinance Mistakes
- Don’t confuse a mortgage refinance with a home equity loan.
- Don’t go with the first lender you talk to.
- Don’t be too quick to refinance.
- Don’t let your mortgage company push you into a deal you don’t understand.
- Don’t be afraid to shop around for the best rate and terms on all available loans and mortgages, including those offered by banks, credit unions, online lenders and even payday loan companies.
As you can see, refinancing your mortgage is a big deal. It’s not something that you should take lightly and make sure to do your research before you dive into this process. If you are confident in your current finances and have kept up with payments on time for years, then refinancing your home may be right for you.
If not, it may be best to wait until things settle down or consider other options before applying for a new loan.