Mortgage refinancing errors can cost you dearly. May people are considering refinancing their mortgage now, but are not fully aware of the various pitfalls in their way. Here are some of the main refinancing errors to avoid. These are based upon genuine mistakes that people have made when trying to refinance their homes. Don’t join them!
Valuing Your Home too High
Most people overestimate the value of their home. They may have purchased it for $200,000 12 years ago and believe it must be worth $350,000 now. They might have carried out some improvements and overestimated their value.
Whatever the reason, there is a tendency for people to believe their homes to be worth more than they would get if they sold it. They think they will be able to refinance to pay a lot less, given their perceived equity.
Another reason for over-evaluation is that people forget that lenders value property different to buyers. You might be including many of your home contents in your valuation, or all that work you have done to build a BBQ area in your backyard. Lenders don’t care – it is the fabric of your property that they are valuing, not the peripherals.
Believing Monthly Payments are Important
Your monthly payments are not the most important aspect of a mortgage refinancing deal. Sure, you might like them to be lower, but how about the fees. What difference does it make with and without points being paid upfront?
Refinancing a mortgage is not always about paying less each month. If you have saved a lump sum, you could use it to buy points that reduce your interest rate, so you are paying more off the principal with the same monthly payment. You will then clear your mortgage loan earlier. You might be able to reduce the agreed repayment period without paying early settlement fees.
Ignoring Mortgage Refinancing
Circumstances change, and people can either earn a lot more or a lot less. Yet they fail to react by refinancing their mortgage. If your income has appreciably increased you could remortgage to switch from a 30-year period to 15 years. You pay more monthly, but clear your mortgage loan earlier.
You could even do it in reverse if your income has dropped. You can change your expensive 15-year term into 30 years if your income has reduced. This could help you keep your home, and most lenders would go along with that if it was the best arrangement for both you and them.
These are just four simple mortgage refinancing errors to avoid. There are many more, but if you can avoid these, then you can honestly say you have a better understanding of mortgage refinance than most.