Mortgage rates remain low, offering qualified home owners an ideal opportunity to refinance their current mortgage. However, if you’re considering a refinance, be sure to avoid these typical mistakes:
Overestimate the value of the home. Despite the fact home values continue to drop, homeowners still tend to over-value their home. As a result, they receive higher-than-expected loan offers. Track home prices in your area using various online tools so you’ll have a better idea how much your house is worth.
Hesitate to lock in low rates. Borrowers are waiting for rates to drop even further, thus missing out on the opportunity to lock-in the current low rates. If you know you qualify for a good rate — one that cuts your mortgage payment or allows you to pay off your mortgage quicker — strike while the iron is hot to realize your savings faster.
Overlook shorter-term loans. Remember, a 30-year fixed mortgage isn’t your only option. A 20-year fixed or even an adjustable mortgage can shorten the life of the loan and significantly reduce the amount of interest paid. Be sure to investigate all loan options and decide which one works best for you and your personal situation.
Focus only on interest rates. Borrowers often forget to factor in lender fees, loan terms and lender reputations into their decision to refinance. Compare several offers and run all the numbers (including fees) using various online mortgage calculators to see which offer is the best and to determine whether refinancing even makes sense for you.
Unprepared. If you haven’t taken out a mortgage or refinanced recently, you might not be aware that you need a lot more documentation these days to get a loan. At the bare minimum, be ready to provide two months of pay stubs and financial statements, two years of W-2s and, if you’re self-employed, two years of tax returns showing self-sustaining income.