Refinancing a mortgage is exciting and a great idea, right? It can lower the interest rate and drop the loan term down a few years, even possibly by a whole decade. It makes good financial sense to refinance a mortgage, especially if it means the house will be free of liens in a shorter amount of time. What happens, though, when some avoidable mistakes are made? The best rates are missed and the overall cost turns out to be more.
1. Not Shopping Around for Quotes
Make sure to shop around and look for the best quotes when looking for a new mortgage. Remember that the closing costs must be paid, just like the initial home purchase! If a homeowner grabs the first deal that comes along, he or she could be missing an even better deal elsewhere. Mortgages are competitive because they need to be. All homeowners should use this to their advantage. A good way to do it is to use a site like Lending Tree, which will let you see a bunch of refinance quotes at one time. Try it out here.
Shopping around for different mortgage companies does not hurt credit scores. The Fair Issac Corp., or FICO, understands that consumers will shop around for mortgages, and it’s actually expected. Mortgage companies perform a “hard pull” of a credit score, which will slightly affect the credit score, but FICO looks at it as one pull if there are multiple bids for one loan in a reduced time period. So, shop around and don’t worry about the hit to your score!
2. Accepting Long Escrows and Non-Adjustable Rates
Be careful to avoid both of these. Banks will weigh mortgage rates against a number of different factors, including supply and demand, which will fluctuate on a consistent basis. The process takes a long time, which gives the market plenty of time to change. Make sure to get a shorter escrow and an adjustable rate to better bend with the market fluctuations. In the end, bending to a bank’s demands to go with longer escrows or non-adjustable rates could cost thousands of dollars in fees.
3. Not Hiring Your Own Appraiser
Using the bank’s in-house appraiser could be a mistake. Maintaining the option to choose the appraiser, attorney or survey company is the homeowner’s right and privilege. Using the bank’s resources leads to conflicts of interest – remember, no one should care more about money spent than the homeowner.
4. Not Knowing About a Homeowner’s Right to Rescind a Mortgage
This is a secret that banks like to keep to themselves. Many refinance mortgages have a return policy for any borrower who wants to give the loan back to the bank. Certain circumstances render a borrower able to return a mortgage thanks to the Truth in Lending Act.
A deal can be made void within the first three days of closing if the borrower meets specific conditions: the mortgage must be a refinance, and the new refinancing cannot be done through the current mortgage company. It should be used as a last resort, but it is always available if you get into something you are not comfortable with.