According to CNET, Americans saved USD 14 billion by refinancing their mortgages since the start of the COVID-19 pandemic. There had been a reduction in mortgage payments of $1.3 billion per month during the first 18 months of the period.
Currently, more than 10 million Americans are eligible for refinancing, and there are more incentives to refinance available in the market than at any other time since 2020. Approximately $9.1 trillion in home equity is still available, and a majority of it is for homeowners with rates at 3.5% or higher. (source for this info?)
Refinancing your mortgage can be a great way to save money on interest and lower your monthly payments. But there are some things you should avoid doing if you want to get the best deal possible.
Here are some of the biggest mistakes homeowners make when refinancing:
Not Shopping Around
Making the decision to refinance can give you many financial advantages. It will save on your monthly payments, save money on interest, pay off your mortgage sooner, and draw from your property’s equity when you need cash.
Not shopping around for the best rates when refinancing a mortgage can have a significant impact on the overall cost of the loan. Choosing a lender with a higher interest rate or fees can result in higher monthly payments and more interest paid over the life of the loan.
It is important to compare offers from multiple lenders and negotiate to get the best possible rate and terms. Even a small difference in interest rates can result in thousands of dollars in savings over the life of the loan.
Focusing Only on the Interest Rate
The interest rate is a big consideration, but it’s not the only thing to think about when refinancing your mortgage.
Other factors include:
- Mortgage term (how long do you want to be making payments?)
- Loan type (fixed or adjustable)
- Refinancing fees (can you get them waived?)
By considering all these factors, you can ensure that you choose the refinancing option that best fits your needs and saves you the most money over the life of the loan.
Putting Off Your Refinance for Too Long
According to a Bankrate survey, many Americans pass up the prime opportunity to cut their monthly payments and lower their interest rates by not refinancing their loans. In July 2021, only 19% of homeowners with a pre-pandemic mortgage had refinanced their loans.
Nearly 47% had yet to consider the option, out of which 27% did not do it because they considered it too much paperwork. However, savvy homeowners are quick to refinance. Some of them have done so twice, even though millions more could take advantage of it.
The longer you wait to refortify your mortgage, the less money you will save. If you’re planning on selling your home soon and taking advantage of a great deal on interest rates, waiting too long could cause you to miss out on that opportunity.
Not Checking Your Credit Score
Not checking your credit score before refinancing your mortgage can be a costly mistake. Your credit score plays a crucial role in determining your eligibility for a loan, as well as the interest rate and terms you’ll receive.
If you haven’t checked your credit score recently, you may not know if there are any errors or negative marks that could impact your ability to refinance or result in a higher interest rate. By checking your credit score beforehand, you can dispute any errors or take steps to improve your credit before applying for a loan.
This can result in a lower interest rate and better loan terms, saving you thousands of dollars over the life of the loan. It’s important to check your credit score well in advance of applying for a loan, as it can take time to address any issues and improve your score.
According to Nasdaq, a survey reported 27% of Americans feeling that checking their credit report will damage their score, which is not true at all. Normally you can get one free copy of your score a year from each reporting bureau. And since there are 3 reporting bureaus, checking your credit score every four months is no problem at all.
Refinancing Too Often
Refinancing too often can be a mistake that can end up costing you more money in the long run. Every time you refinance your mortgage, you’ll have to pay closing costs and fees, which can add up quickly.
Additionally, if you refinance to a longer-term loan, you may end up paying more interest over time. While refinancing can be a good way to lower your interest rate or monthly payments, it’s important to carefully evaluate the costs and benefits of each refinance.
In general, it’s best to refinance only when it will result in significant savings, such as a lower interest rate or a shorter loan term. By avoiding the temptation to refinance too often, you can save money and achieve your financial goals in the long run.
Choosing the Wrong Type of Mortgage
Choosing the wrong type of mortgage when refinancing can lead to significant financial consequences. For example, switching from a fixed-rate mortgage to an adjustable-rate mortgage (ARM) may result in a lower initial interest rate, but the rate could rise in the future, resulting in higher monthly payments.
On the other hand, switching from an ARM to a fixed-rate mortgage may result in higher monthly payments, but will provide more stability and protection against rising interest rates. Additionally, choosing a mortgage with a longer term than your current mortgage may result in lower monthly payments, but could ultimately result in paying more interest over time.
It’s important to carefully evaluate the pros and cons of each mortgage option and choose the one that best fits your financial situation and goals.
You must do it right if you’re considering refinancing your mortgage. There are many things to consider and mistakes to avoid. We hope this article has helped you understand what those mistakes might be so that they don’t happen again in the future.