A refinancing loan is one that you get after you have bought your home. This usually happens after you have built up some equity in your home. This is usually done to lower your interest rate, to lower your payments, or to cash out on your equity. You can cash out on your equity for a variety of reasons, including remodelling your home, medical emergencies, or dream vacations.
Most of the time you are refinancing your home, but occasionally you can refinance your car or other items. You can refinansiere lån uten sikkerhet or refinance your loan without collateral. These types of refinancing loans are usually not home or car refinancing, but possibly personal loans.
This article will help you to learn about some of the mistakes some people make when refinancing their homes. These mistakes are ones that can be avoided by doing some research to see what you need to do in order to refinance your home. This article will help you to avoid those mistakes and save you some time and money.
Mistakes You Could Make
- Not Shopping Around – One of the biggest mistakes that you could make is not to shop around for the best loan. If you choose the first one on the search engine, you might get lucky, but more than likely, you won’t get what you are looking for. You need to check for the lowest interest rate as well as the lowest fees that are attached to the loan. You also want one that can give you the biggest payout for the equity that you have in your home.
- Fixating on the Interest Rate – If you only look at the interest rates on the loan, you might miss out on the fact that they can offer you a lower interest rate because the rest of the loan fees are much higher than other lenders. You should look at closing costs, as well, so that you can see if the lower interest rates are hiding behind higher closing costs. Closing costs can include things like origination fees, credit reports, points, and other fees that you need to inquire about.
- Not Saving Enough – You will want to make sure that you can lower your interest rate by more than half a point. You want to lower it by at least three quarters of a point, if not a whole point. If you don’t get the interest rate low enough, you are really not saving enough money. You want to make sure that your break even point is around four years or less. Your break-even point is the amount of time that it takes your savings from refinancing your home to exceed what you paid to do the refinancing. For example, if you paid $4,000 in closing costs on your loan and you saved $100 per month on your payments, your break-even would be 40 months, or just over three years. If your savings were only $50 per month, it would take you 80 months, or just over six years to break even. You might decide to move in that amount of time, so your savings wouldn’t be worth the closing costs that you paid.
- Trying to Time Mortgage Rates – Some people try to time the exact moment that the interest rates will be at all-time low. What they don’t realise is that they could be missing out on a good deal because the interest rates could jump while they are waiting for them to get lower. It has been said that timing the interest rates could be as tricky as timing the stock market – not even experts can do this.
- Refinancing Too Often – Some people want to keep refinancing their home every time the interest rates go lower. They are thinking about the interest rates and not the closing costs that they are spending. If they keep refinancing, the cost of the closing costs could be outrageous. If you just refinance to keep up with the interest rates four times, that could be over $12,000 in closing costs. Even if these costs are rolled back into the loan, you aren’t saving anything, and you might be spending even more.
- Not Reviewing All Documents – A good faith estimate is an estimate of all the costs of the refinancing. This includes all fees and the APR, or annual percentage rate. You need to look this over as well as all the other documents that are given to you. If the documents don’t match what you were told by the lender, you should probably find another lender. Some disreputable lenders will add money to the paperwork that they didn’t tell you about expecting you to not pay attention to the paperwork.
- Cashing Out Too Much Home Equity – Another issue that happens is that homeowners will taking out too much of their home equity out at a time. If the home market falls you will lose money and you won’t be able to recover. It also might raise your mortgage rates so high that you won’t be able to pay them if you have financial difficulties later on.
- Stretching Out Your Loan – You need to be aware of the extra costs that are involved in stretching out your loan. If you started with a thirty year mortgage and had that for five years and refinanced for another thirty years, you will be paying extra costs in interest fees. You will be paying less each month, but you will be paying more overall on your loan. Sometimes a better idea would be for you to refinance for a smaller term, for example a 20- or 15- year loan instead of another 30- year loan. You might not save a lot each month, but you will save a lot of interest money over the years.
- Agreeing to Prepayment Penalties – You don’t want to agree to penalties for paying your loan off early. You might not ever be affected by this, but if you have the chance to pay of your loan early, you don’t want to have to pay extra money. If you sell your home or refinance your loan, these penalties could come into play. Be careful to read your documents carefully because this is often hidden in the small print.
- Paying Junk Fees – You need to look for junk fees in the documentation – fees like origination fees or application fees are legitimate fees. There are fees such as document preparation fees, credit report fees, and delivery of document fees are junk fees and can be removed if you ask about them. You don’t want to pay any more fees than you already have to, so be careful and read your documents before you sign. A general indication if the job is something that you could do yourself, it is a junk fee.
There are many things that you need to look at when you are considering refinancing your home. If you aren’t watching out for these things, you could end up spending more for your loan than you would otherwise save. You need to make sure that you read all the documents before you sign them so that you know that there aren’t any extra fees added that you weren’t told about. If you sign the documents, you could be responsible for junk fees, extra costs, or prepayment penalties that you weren’t told about upfront.
If you read about the above mistakes, you will know what to look for. These items are things that you could be charged for if you are not careful. You want to read even the fine print on all documents before you sign them. You want your refinancing to go easy and it will if you are careful.