Are You A New Home-Owner? Here Are Some Important Mortgage Refinancing Mistakes You Should Be Aware Of
Refinancing your mortgage isn’t something you should take lightly, and while you might get plenty of chances during your lifetime to renew your loan, you should still treat the whole thing seriously because doing it right can pull more weight off your shoulders than you might realize. Too many people make some crucial mistakes when they’re thinking of refinancing, and if you happen to be a person who’s prone to this, then we have exactly the sort of advice that you’re in need of right now.
While refinancing seems to be a relatively simple process at first, there are plenty of nuances that require your attention. Any blunders that you make while refinancing your mortgage will stick for a while, and you’ll wish that you’d done it right the first time. Here are the mistakes that you need to avoid so that you can ensure that you have a smaller interest rate at the end of the day, and subsequently less money left to pay off.
Falling For Unnecessary Fees
You’re going to have to pay money for the process of refinancing, but make sure that you’re not paying for something that could have been done for free. While some processes, like the loan origination and such, are required and need to be paid for, some lenders will go out of their way to make as much money off of you as they can. Preparing your documents is not a legitimate use of your money and neither is getting your data ready so that your process can begin. Watch out for any unnecessary fees for things that you can otherwise do yourself for free. Lenders who try to fool you into paying such fees are up to no good, and it’d be in your best interest to move elsewhere.
Not Watching Out For Penalties
No one likes to read a bunch of terms and conditions for a few minutes straight. If you’re anything like the average human, you generally click or sign on agreements without thinking twice about what the fine print entails. However, that could be a serious mistake when it comes to refinancing because you could accidentally end up paying extra if you go for refinancing ahead of when you initially planned. Lenders have to make sure that they make money somehow, and although this isn’t common, you could find yourself paying extra if your lender has that policy. This is done to make sure that if a buyer decides to sell a house or refinance before the lenders have made their money back, they can still top off on a profit. This penalty isn’t necessary whatsoever, and unless you’ve already agreed to one for a different custom package, you shouldn’t have to face it, especially if your prepayment penalty is around after the duration of three years or more.
Extending The Mortgage Duration
While starting out, most people tend to go for a loan that lasts 30 years. This is considered the standard duration, although it can vary depending on the lender and buyer. When people go for refinancing, they make the huge mistake of extending their loan to a period of 30 years once more. This sort of dealing is based on the misconception that the homeowner will have to pay less now, although that’s not the case at all. If you’ve been paying for your house for ten years now and decide to spread your remaining 20 years of a loan over a period of 30 years, you’re going to feel like you’ve got less money to give per month.
However, what you’re forgetting about is that you’re forcing yourself to remain in the loan for a longer period of time. Yes, you’re now paying smaller amounts of money per month, but in the long run, you’re going to be spending a larger amount than you need to due to the interest. If you’ve paid for ten years, make sure that your new mortgage fits into your original remaining timeframe, which, in this case, would be 20 years. Mortgages that have shorter time-periods tend to have better interest rates, so while you might be paying the same per month, you’ll be saving a lot.
Mortgages can be confusing, but if you are careful about these key points, you’re going to have a much easier time. Don’t take the plunge if you’re unsure; instead, do additional research and be wise in making your final decisions.
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