Refinancing your home loan with the current low rates may save you money every month, but potential problems may arise when you aren’t guided by the right person. There is a lot of misunderstanding as to how a refinance works. Here are common refinancing myths to be aware of:
1. You don’t know your current credit score or are unsure you can save money.
Be certain to obtain your credit score as it’s key in determining the interest rate you receive. You can use the refinance calculator on Fairway Independent Mortgage Co. to estimate your new monthly mortgage payment, but it is a good idea to have a loan officer analyze the numbers for you to obtain a more accurate view of what you can save.
2. Opening new credit accounts and running up debt.
It is important to know that lenders check your credit when you apply for a refinance and again just before the settlement. Making large purchases on a credit card or applying for new credit could cause delays in the approval process.
3. Being unrealistic about your home’s value.
Contact Fairway to receive a monthly view of the sales price of homes in your immediate area so you always have an accurate picture of how much houses are selling for. Some homeowners ignore current home values in their neighborhood and overestimate how much their home is worth.
4. Neglecting to consider all costs.
While lowering your monthly payment is the main goal of a refinance, it should not be the only factor you consider. Fairway can check your current mortgage documents to ensure your loan doesn’t have a penalty if you pay off your mortgage early. Then you can evaluate the amount of time you have left on your current mortgage and consider the refinance closing costs before moving forward.
5. Not locking in rates.
Mortgage rates change often. Generally, a lock is somewhere between 30 and 60 days.
6. Failing to calculate the “break-even point.”
This is the date when the money you saved by refinancing your mortgage equals what it cost you to refinance. This is important because if you sell your home or refinance before the break-even point, it won’t be worth your while to refinance–it will cost you money rather than save you money.
Refinancing your home can make your monthly bills more manageable or free up your cash flow. It’s too easy to put off a review of your current mortgage because you don’t have the facts about how much a refinance could help you. Contact a mortgage planner to make sure that your refinance process goes as smoothly as possible with no headaches.
By Guest Blogger Justin “JC” Coleman, Branch Manager at Fairway Independent Mortgage Co.