1. Make Sure of Your New Interest Rate
- Make sure that you save enough to justify the process of refinancing. It is best to decrease your interest rate by at least .75% to 1%. For example, this will save you about $100.00 a month on a $150,000.00 mortgage.
2. Know Your Closing Costs Up Front
- By law, closing costs must be disclosed within 3 days of the loan application, however, there are different approaches to calculating them. Closing costs are initially estimated until the details of your specific loan are clear. It is wise to use a worst case scenario and be pleasantly surprised.
3. Be Sure You Fully Understand Your Reason(s) For Refinancing
- Some refinance simply to reduce their interest rate. You should be aware that simply reducing your interest rate is not always to your advantage, so make sure that the gains from your rate reduction more than cover the related fees. There are, however, other legitimate reasons to refinance that may not be related to interest rates. Some are debt consolidation, home improvements, or a major purchase. Some of these choices may offer other financial or personal advantages, such as taking cash out to buy a car. In this example, you may be able to deduct your interest payments on your tax return. Always consult an accountant or tax attorney before making these types of decisions.
4. Beware of “APR” Advertising
- “APR” stands for Annual Percentage Rate. Some mortgage brokers use “APR” teaser rates to get your attention, however, they may actually end up costing you more. Such rates are often derived by using a 30 year mortgage coupled with an accelerated payment plan. Most lenders allow you to select such a plan, if you chose. Know your actual interest rate that you will be paying when comparing mortgages.
5. Should I Consider an Adjustable Rate?
- Adjustable rate mortgages or “ARM’s,” can be very helpful in assisting people into the housing market. They can help minimize your monthly payment, however, in the long run they can cost you more money if additional refinancing occurs.
6. Beware of the Quality of Service Provided
- You want your refinance to be accomplished with as little hassle and in the shortest period of time. Ask your mortgage broker details of their service plan and performance guarantees.
7. Not All Mortgage Brokers are Created Equally
- Be sure to ask your mortgage broker about all their available loan products, terms and rates. A subtle difference can save or cost you thousands.
Mortgage regulations have changed significantly over the last few years, making your options wider than ever. Subtle changes in the way you approach mortgage shopping, and even small differences in the way you structure your mortgage, can cost or save you literally thousands of dollars and years of expense.
Get the Right Information – Whether you are about to buy your first home, or are planning to make a move to your next home, it is critical that you be informed about the factors involved.
Everyday people turn to a mortgage lender to help them refinance a home loan, but because many of them don’t know all of the important issues, they often make incorrect choices. By taking these few minutes to acquaint yourself with the “How to Avoid the 7 Biggest Mistakes Refinance Shoppers Make” you can reduce or eliminate the chances of making a critical error and save thousands on your mortgage.