3 Common Refinancing Mistakes
Mortgage refinancing is a great way people can resolve some of their personal finance problems. Mortgage financing helps a person generate extra money to repay loans and debts, make various home improvements and etc.
However, as good as it may sound, before a person rushes into applying for a new home loan, there are 4 common refinancing mistakes that should be observed.
Failing To Lock In the Loan Rate
It is important to realize that mortgage interest rates fluctuate and change every day. If you received a loan today, it would take around 2 or 3 weeks for the loan to get approved and process. By that time, the interest rates could have changed.
As a result, if you got a low interest rate before, chances are that it would not be the same. Due to this, a loan lock should be considered which essentially locks in the interest rate for 60 days.
Agreeing To a Prepayment Penalty
Agreeing to a prepayment penalty is a great way to get better interest rates; however, it has its advantages and disadvantages. A prepayment penalty is a good idea for buyers who will be living in their homes for a long period of time.
However, if a person decides that they will be moving houses within the next 2 or 3 years, then accepting a prepayment penalty is not a good idea. In this case, it would be best to request that the lender waive the penalty altogether.
Switching From a Fixed Interest Loan To Interest Only or Arm Loans
This is one of the silliest refinancing mistakes. If a person gets a fixed rate loan, then they should not change it what-so-ever because interest rates fluctuate over time. As a result, obtaining an interest only or adjustable rate loans is not a good idea as you may end up paying more interest on your loan than you expected.
Interest only and adjustable rate loans provide a short term benefit to the home owner and nothing more. The only way that a person can ensure the amount they will need to pay each month is if they are on a fixed rate loan.