Compare Mortgage Quotes

Refinance Rates for Today

Please enable JavaScript for the best experience.

In the mean time, check out our refinance rates!

Company Loan Type APR Est. Pmt.

9 Refinance Mistakes and how to avoid them

Posted on: 21st Sep, 2005 09:24 pm
When you've decided on a refinance in order to switch over to a better interest rate/loan, you should be aware of the mistakes most people make while refinancing and how to avoid them. A little know-how about the common refinance mistakes will prevent you from taking a wrong step during the process. Here are the top 9 mistakes you should avoid when you refinance.

1. Refinancing without shopping around


Many believe it's easier to get a refinance from their current lender. But your current lender may not offer the best option in terms of rates, fees, and other terms and conditions. So, it's better to shop around and compare the offers until you find the right loan for you.

Even if you do decide to refinance with your current lender, you'll need to re-qualify for the new loan. This means your current financial situation will have to be verified by the lender.

2. Unaware of the Break-Even period


When you are trying to refinance, you'll have to pay closing costs that can be offset by your savings due to the lower interest rate. The time when your savings fully offset the costs of the new loan is the break-even period.

You need to calculate the break-even period, so that you can occupy the property until then and recoup your costs. This is helpful when you refinance with a similar loan in order to take advantage of a lower interest rate and monthly payments.

3. Not receive a Good Faith Estimate


Most lenders are likely to provide you with a Good Faith Estimate of closing costs within 3 business days of receiving your loan application. This helps you to trace any hidden costs that you can avoid. So if the lender doesn't provide you with an estimate, try contacting the lender. If the lender refuses to provide you with an estimate, contact another lender who will.

4. Considering Assessed Value of property


Do not depend upon the county tax assessor's assessed value of your property. The loan amount isn't based on the assessed value, but on the appraised value of your property determined by a real estate agent using either the Sales Comparison Approach or the Cost Approach.

5. Paying for an appraisal even if home value is low


It's better not to agree to pay for a formal appraisal when you are aware your appraised home value may be low enough to qualify.

If you think the appraised value of your home is low enough to get a good refinance loan, then you should ask your current lender to determine your home value using the automated valuation model (AVM). This approach takes into account the value of similar homes in the neighborhood.

The appraiser gives you a range of possible home values, which will allow you to determine whether you can afford the home with the financing that is available. You can even check out the home affordability calculator to know how much mortgage you will be able to afford: http://www.mortgagefit.com/calculators/howmuch-afford.html .

6. Signing loan docs without proper review


Check the loan docs before signing on them. Read the terms and conditions thoroughly before you sign them. If possible, ask the lender to allow you to read the papers in advance because you will not get enough time to go through all the docs at closing.

7. Not providing relevant docs in time


You can prevent unnecessary delays in closing if you submit the required documents to your lender on time. Otherwise, if closing is delayed, and mortgage rates go up then you may be stuck with the higher rate.

8. Getting a verbal Rate lock


It is best to get the rate lock in writing from your lender. This written statement includes your interest rate, length of rate lock, and other details of the loan program.

9. Taking cash from a HELOC (Home Equity Line of Credit)


Lenders often require that homeowners wait at least 6 months after taking money out of a home equity line of credit, before refinancing.

Moreover, if you withdraw money from your HELOC for anything except home repairs and then refinance, lenders will consider the first transaction as a "cash-out". This is because you've already accessed your line of credit. So, it's a good move not to pull out equity prior to a refinance.

Refinancing mistakes can cost you a lot of time and money. So, it's better to avoid them and stay away from mortgage problems that could land you in foreclosure.

Related Readings
Related Forum Discussions

Hi Bill,

As your credit score is low, you won't qualify for the refinance. Thus, the lender wants your wife to remain on the mortgage whereas your name remains on the property deed. I don't think there is a disadvantage of this as, though, you will remain the owner of the property, you won't be responsible for the mortgage.

Thanks
Posted on: 01st Jun, 2010 11:38 pm
I have been in my home for two years. I have paid almost seven thousand toward a 120,000 dollar home. My rate is at 6% percent and I have been offered a 4.5% refinancing rate. Should I take this route or keep things the way they are? I only plan to stay in the home for another two years.
Posted on: 10th Jun, 2010 09:48 am
Hi rhamby,

As you're planning to stay in the property for a shorter period of time, it does not make sense to refinance the loan. You won't be able to offset the closing costs that you'll have to pay while refinancing the loan.
Posted on: 13th Jun, 2010 11:47 pm
'Nuf said.
Posted on: 19th Jun, 2010 08:39 am
i have a interest only loan and if i want a loan that allows me to pay the principal and interest would this be considered refinancing?
Posted on: 23rd Jun, 2010 06:41 am
Hi gabula,

If you take a mortgage using the same property as collateral and pay off the balance dues of the existing loan, then it will be considered as a refinancing.

Thanks,

Jerry
Posted on: 24th Jun, 2010 02:17 am
I just paid for an appraisal that came in at $350,000 and I owe $347,000 on my 3yr old 30year 6.875% fixed rate (no PMI) loan. Is it worth buying down ($14K - $37K) to get into a 90% - 96.5% LTV with 4.875% - 5% with PMI and closing fees, etc... to lower payment $400 - $600 or should I wait a few years to see if property value goes up so I have a chance of getting approved for a normal 80% LTV 30 yr fixed loan?
Posted on: 29th Jun, 2010 08:07 pm
you can pay a lump sum amount towards your mortgage and build equity in your property and then you can refinance the loan to get lower rates and terms. if it is not possible for you to pay off a lump sum amount, then it's better to wait for few years, build some equity on your property and pay off the loan.
Posted on: 30th Jun, 2010 12:05 am
I think I'll side with Jasmine here, and suggest that you and your family, friends, loved ones, and more; begin to pray for increasing value in your home.

At the same time, you can save yourself some interest costs by prepaying your loan every month - as little as $100 per month paid on the principal balance will result in hefty savings, if you can do that. Any amount is worthwhile, frankly, and that'll put a tad bit of equity in the home as you do so also.
Posted on: 02nd Jul, 2010 11:23 am
We have an existing 5.25 fixed rate on a mortgage with approx. $100,000 left after paying for 7 years. We also have $30,000 in credit card debt. Does it make sense to refinance if we plan on staying long term? Should we check on combining credit card debt and mortgage? Thanks! :wink:
Posted on: 12th Jul, 2010 02:40 pm
We currently have a 30 yr. fixed loan at 5.625 with a balance of 228,000. The original loan was 250,000 (we are 6 yrs. in) and the property is assessed at 440,000. My current lender is offering 4.375 on a 20 yr fixed with the mo. payment a little less than what we currently pay. We should be in the house for at least 5 yrs. from now. Closing costs estimated to be approx. 2500-3000. Seemss like a great opportunity to me since break-even period would be in approx. 12-13 mos. & rates are historically low. Feedback would be greatly appreciated. Thanks.
Posted on: 13th Jul, 2010 01:19 pm
Hi Vikings,

If you're planning to stay in the property for a long term, then it would be a good idea to refinance the loan. You can use the loan proceeds to pay off the credit card debts. However, in order to refinance the loan, you should have equity in your property. I hope there's equity in your property.

Hi Natty,

With the break even period that you've mentioned, you'll be able to offset the closing costs within 1 year. In that case, it would be a good option to refinance the loan and take advantage of the low interest rates.

Take care.
Posted on: 14th Jul, 2010 01:42 am
Have VA mortgage loan of $124k at 6% fixed rate and 23 yrs left . Is it advisable to refinance to 15 yrs at 4% fixed rate. Will it lower my monthly payment? Have a HELOC on the property. Lender told, I have to pay $4000. closing cost. Is it advisable to refinance?
Posted on: 26th Aug, 2010 12:59 pm
Welcome cruz,

There are chances that the refinance will help you in lowering your monthly payments as you're getting a 2% reduction in the interest rate. The closing costs may vary state wise. You can speak to some of other lenders in order to find out the type of closing costs you'll have to pay.
Posted on: 27th Aug, 2010 01:18 am
Is it possible to renegotiate the interest rate directly with the mortgage company you are currently with and save on refinance charges?
Posted on: 03rd Sep, 2010 02:14 pm
Page loaded in 0.092 seconds.