Considering Refinancing Your Home? Avoid These Mistakes

Are you considering refinancing your mortgage? Before you make any decisions, you need to make sure you avoid some of the mistakes most commonly made in this process.  

What Is A Refinance?

Refinancing your mortgage means getting a new loan for your home. People pursue a refinance because of value changes with the house, newer — and better — interest rates and other personal reasons.

The refinance pays off your old loan and payments and replaces it with a newer, better version — sometimes.

A refinance cannot be done in a day. Before you decide, there are a few steps of the process that you need to recognize. They include:

• Applying
• Rate Locking
• Underwriting
• Closing

Before you decide whether or not you want to refinance, be sure to avoid the following pitfalls. 

Opening New Credit Accounts

When you refinance, you’re basically going to have to apply for a new mortgage. That means your lender will be looking at your financial statements, W-2 forms and credit score again.

If you open up new credit accounts, that could damage your score. But if you focus on your current credit accounts, it will both strengthen and solidify your ability to get a refinance application approved.

Not Locking In Your Mortgage Rates

Step two of the process above is rate locking, and it’s an easy step to overlook. Mortgage rate locking can easily change, and current rate locks only last from 30, 45 to 60 days.

You need to negotiate with your lender on the best possible rate in the market for you. That means doing your homework and acting quickly yet effectively.

Not Recognizing All Of The Costs

A new mortgage means new interest rates, fees for locking your rate for too long and closing costs. Try to consider different scenarios for your refinancing. 

This will include changing the loan amount you want and running through the numbers for all scenarios to find the best option for you, financially and logistically.

Being Too Impulsive

In the end, you cannot be too reckless with your refinance. You could end up with a loan that's inferior to your previous one. 

Making decisions with your lender without doing your real estate and mortgage rate research can further impede on your choice.

Take your time before you apply to achieve the best refinance option for you.