For most people, their mortgage is their biggest investment. This is the main reason it’s so important to do things right when it comes to refinancing your mortgage. A few small mistakes can lead to ballooning debt. One of the best ways to avoid making mistakes is to know what they are. Here are four of the biggest mistakes people make when refinancing.
Mistake #1: Not Knowing What Your Home is Worth
Housing prices can fluctuate, and homeowners often have an inflated idea as to what their homes are worth. If you walk into a refinance situation believing your home will command top dollar, you’ll probably be shocked to discover your lender doesn’t share your opinion. You need to research area home prices before you decide to approach a lender.
Mistake #2: Not Going in With Your Best Credit
If you don’t take a look at your credit report before refinancing, you can be giving up some major money in the form of a higher interest rate. Take a look at all three of your reports. (It’s free from the government.) Make sure there are no errors, and if there are, fix them. Try to negotiate some of the negative items on your report with your credit card lender. If you don’t know how, hire a credit repair company to help you. Here’s a good list of reputable credit repair services.
Mistake #3: Not Considering the Costs of Refinancing
Lots of lenders tout low interest rates to entice homeowners to refinance homes. The costs of refinancing are often downplayed. However, between the costs of the appraisal, legal fees, closing costs, and more, you could be out thousands of dollars and you might not be saving as much money as you think you are, especially if you only end up shaving half a percent off your rate. You’ll need to know how much you’re actually saving in the long run before you take the plunge on refinancing your mortgage.
Mistake #4: Falling for Adjustable Rates When Refinancing
An adjustable rate mortgage can get you better initial interest rates, but these rates can rise rapidly and lead to huge payments. These loans can also be a pretty big gamble for the average Joe. An adjustable rate mortgage can make sense for people who move around a lot and who expect to be out before an increase kicks in, but if you’re not this type of person, it’s better to look elsewhere.
Avoiding these four big mistakes when refinancing your mortgage can save you tons of cash. It’s important to think things through when you’re refinancing your mortgage loan. You should also read all the fine print associated with the loan. Being prepared and aware of the potential pitfalls will help you make better decisions when you decide to refinance your mortgage.