This 2020 coronavirus outbreak has had a profound financial impact on our finances. The state of this impact can be evaluated by how even the Federal Reserve was forced to reduce interest rates.
This may seem like a golden opportunity for those who want to refinance their mortgage loan into a new one with lower fees and rates along with lower monthly payments. But, it is suggested that refinancing is not always the best choice in every given situation. One should research their options carefully before refinancing and considering a new loan to repay an old loan.
Here are three of the most common mistakes regarding mortgage refinancing that can cost you your hard-earned money:
Refinancing with less than 20% equity:
It may be difficult to find a refinance lender if you owe more than 80% of what your property is worth. And, if you are lucky enough to find one then you will likely have to pay Private Mortgage Insurance in this case. This may cost you money but will protect you from loss in case of foreclosure.
It should also be kept in mind that if you aren’t paying Private Mortgage Insurance on your current loan but, will have to do so on your new loan then this insurance cost will negate all your savings that come from your refinancing.
Not making financially sound choices:
Even if refinance rates are low at the moment, it does not necessarily mean that it will be a financially sound choice for you. We recommend you to do the proper maths for this.
Here are a few things that you need to be sure before you opt for refinancing:
– make sure that your credit is good enough to qualify you for a loan at a low rate
– good credit score
– consider closing costs associated with a mortgage refinance
– remember that even if closing costs range from 2% to 5% of the amount to be borrowed, these can add up quickly.
– if you are planning to move within the next few years then mortgage refinancing might not be suitable for you
– beware of mortgage lenders who offer refinance loans without closing fees because they usually trap you with higher interest rates
– if you opt to get a large enough loan to cover all your closing cost then keep in mind that you will have to pay interest on your closing cost.
Not shopping around for mortgage lenders:
Remember that while refinancing, it is not obligatory to stick with one mortgage lender. You can consider any mortgage lender, bank, and or credit union that you feel comfortable with and that offers you low mortgage rates. Look around for mortgage lenders to find the one that charges you the least for your loan. Get all the information from multiple lenders and compare the overall costs then select the one that offers the best deal for you.
Another thing that should be kept in mind is that mortgage refinancing is suitable for those whose finances are in order and who wish to save money on mortgage payments in the long run. For people who are only looking for short-term help, they should consider other mortgage relief options.