One of the negative impacts of historically low mortgage interest rates (at least for me) is hearing friends brag about what a great deal they got on a mortgage refinance. But instead of being jealous, you can look into a refinance yourself. With rates still close to historic lows, it’s not too late to get a good refinancing deal. To ensure you’re a refinance success story, avoid some common mistakes.
1. Succumbing to Pressure
Refinancing can be a great deal. Locking in a lower rate can mean you pay much less over time for your home. But it makes sense to refinance only if it works out that way for you.
As we head into homebuying season, mortgage interest rates are dropping once again. But they have risen about a percentage point from their low last year. Many people fear rates will begin rising, and this can instill a feeling of panic and an urgency to act. While you may want to look into a refinance sooner rather than later, you shouldn’t feel pressured to refinance until you crunch the numbers and make sure it’s worth it for you.
2. Sticking With Your Current Bank
The bank that holds your current mortgage may end up being the best option for your refinance. But don’t just assume it will be without doing some homework. Research other lenders. Compare rates among several lenders so you get the best deal you can. Even if rates are relatively the same, a small change can add up to big savings.
Once you find a rate that works for you, whether from your current bank or another one, confirm with the lender to lock in the rate. When a bank checks your credit to approve you for a refinance, the inquiry may drop your score a few points. When shopping around, you can limit that impact on your credit score by shopping in a short time period — two weeks is ideal — so credit scoring models will count those multiple inquiries as only one inquiry. If you want to see how inquiries are affecting your credit, you can check two of your credit scores for free every month on Credit.com.
3. Overlooking Closing Costs
Just like when you got your original mortgage, you will have to pay closing costs for your refinance. A refinanced loan will have many of the same closing costs as that original loan, like loan origination fee, loan application fee, appraisal fees, title fees and attorney’s fees. It can add up to 3% to the cost of the loan. It’s important to factor in the closing costs when you are determining if a refinance will save you money in the long run.
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