Borrowers logically want to refinance when interest rates are lower. Whether you’re looking to trim your mortgage payments, eliminate credit-card debt or pay off your car loan, experts say you should fully understand all of the options available to you before deciding to refinance. Borrowers should be cautioned about making these simple mistakes.
The savings to be earned is insufficient. It’s best to decrease your rate by at least .75 percent to 1 percent. This will save you about $100 a month on a $150,000 mortgage.
Having no knowledge of the closing cost. The law mandates the disclosure of the closing costs within three days of the loan application. The difference lies in the manner of calculating rates. You should keep in mind that the closing costs are only estimates before the loan details are finalized. Assume the worst to avoid any surprises.
Having no full knowledge of the reasons behind the financing. Besides reducing your interest rate, there are other legitimate reasons to refinance, such as debt consolidation, home improvements or major purchases. In some cases, you may be able to deduct your interest payments on your tax return. It would be prudent to ask for advice from accountants and tax experts prior to taking the plunge.
Inability to recognize APR enticements. Some broker have no qualms using deceptive annual percentage rates to lure borrowers, with the latter unaware that he may end up paying more. APRs are estimates are based on a 30-year mortgage and an accelerated payment schedule. Make sure you know the actual interest rate you will be paying throughout the life of the loan.
Not weighing the pros and cons of adjustable rate mortgages. ARMs will lower monthly payments provided there is no further restructuring. There is a chance that you may end up with paying more over a long stretch.
Lack of knowledge of the mortgage broker’s supposed services. The borrower should not experience difficulty in accomplishing the refinancing process. Ask your mortgage broker to provide details of its service plan and performance guarantees.
Not being able to require the mortgage broker about other loan services and the respective rates and other terms. Subtle differences can save or cost you thousands of dollars.
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