7 Dumb Mortgage Refinancing Mistakes to Avoid

Your house is most important asset. Do not blow it through stupid errors. Starting over with a few benefits is everyone’s dream come true. However, refinancing a home loan could set you up for some stupid, dumb mistakes you thought you could never have made. Granted, you want reduced rate, smaller monthly mortgage payments or satisfy some goal. Current rates are near historic lows and just right for a refinance. Just do not run headlong into big blundering mistakes like the ones given here.

Important Tips to Know for Mortgage Refinance

A house can be a castle to be proud of or a burden to be ashamed. An unaffordable mortgage brings frustration and tears. Refinancing your mortgage could save you. If only. If only you know how not to make seven common blunders in your dumb rush to correct a past mistake. Do-over a perceptive, well-informed financial move to lower your biggest monthly expense – your mortgage.

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House Refinancers Beware Of Seven Common Mortgage Refinance Mistakes

1) Blunder No. 1: Refinancing without benefits

  • Best way to refinance home and be effective is if interest rates are lower by at least 1 percentage point.
  • Alternatively, try to follow the national average as rates keep changing
  • A 30-year loan at 5% refinanced to 4.5% 30-year loan doesn’t make sense
  • Trying for current national average 4.24% or lower could be better
  • Refinancing is not worthwhile for less than 20% equity
  • Lower your debt to income ratio before refinancing or invite burden of PMI expenses
when to refinance home mortgage

2) Blunder No. 2: Not focusing on APYs as well as APRs

  • Searching for lowest possible rate on refinance my mortgage means knowing difference between APR and APY
  • APR is normally associated to mortgage loans that come with closing costs and origination fees
  • Figure in all costs, fees and compounding interest periods in addition to rates
  • APR is simply periodic rate of interest multiplied by number of periods in year not including other costs, fees and compounded interest. You may end up paying more.
  • Use mortgage calculator to compare both APR and APY rates on a mortgage

3) Blunder No. 3: Not using credit score to your advantage

  • Higher credit scores are best to gain lowest interest rates when refinancing a house
  • With weaker scores, wait and improve scores by lowering debt, making on-time payments and correcting credit reports
  • Boost scores sufficiently to gain significant reduction in interest rates
  • With a 1% difference in rates you could save over $70,000 in total interest paid over a 30-year loan term

4) Blunder No. 4: Not avoiding ‘no-cost’ refinancing

  • No-costs refinance mortgage are actually costs rolled in with principal amount
  • If you do not pay upfront costs and fees, you’ll pay interest on them too plus a higher interest rates on entire loan
  • It is only for those who aim to leave or sell home in few years’ time saving money on initial installments made

5) Blunder No. 5: Missing the best option Refinancing

  • Choosing a suitable refinance home loan should save you money over entire loan term
  • An initial lower arm will be increasing continuously – refinance to lock in a low fixed rate
  • Take advantage of no prepayment penalty by making more than monthly mortgage payments
  • This shortens loan term several years as well as saves on total interest paid

6) Blunder No. 6: Not keeping breakeven point in mind

  • Refinance home mortgage usually makes sense to home owners planning on staying entire loan term
  • It will take some years to reach breakeven point – months you spend recovering extra costs on refinance
  • Savings will increase only when you cross-breakeven point
  • If you leave home before breakeven point, you have lost the advantage

7) Blunder No. 7: Taking cash out when you refinance

  • Taking cash out with home mortgage refinance could be a big mistake unless you really need to
  • Cash-out makes your mortgage bigger than before
  • You lose equity and borrowing potential for future needs
  • Cash-out refinance carries higher interest rates than non cash-outs

best way to refinance your home

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