Costly Mistakes: Refinancing Blunders You Should Avoid

finance

financeMany homeowners rush to refinance their homes, especially when interest rates go down. Blinded by low rates, they forget to evaluate the real consequences of their actions. They also fail to realize that mortgage refinancing can sometimes be a bad move.

If you’re considering refinancing, it is important to remember that it can only benefit you if you intend to stay on the property for the long-term. Direct Mortgage Loans shares the refinancing blunders you need to avoid.

The Wrong Loan

Your priority when refinancing should be lowering your overall payment regardless of the length of the loan. Sometimes, even with a low rate, you end up with higher payments because you have increased the size of your mortgage. Evaluate the cost of refinancing and its financial benefits before deciding on a loan. Don’t forget that switching into another 30-year mortgage adds more years of payment, particularly if you have been paying the existing loan for a long time.

Failing to Shop Around

One great way to save money when refinancing is by comparing loan offers from lenders or title companies before choosing. You may enjoy benefit sticking with the same lender, as they may require less paperwork, but it’s better to consult others to compare fees and rates. Get quotes from at least three lenders or mortgage companies to help you make a sound decision.

Wrong Timing

If you refinance and don’t stay in your home for years, your decision can be a mistake. It is important to decide how long you intend to stay in the property and know the point when savings outweigh the cost before deciding to refinance. If you’re not planning to stay for more than a few years, the cost of a new loan may negate possible savings. You have to make sure that your decision will have a net tangible benefit.

Refinancing can only be a great financial move if it lowers your monthly payment, shortens the term of the loan, and builds equity more quickly. Use it carefully so it can be a valuable tool to get your debt under control.