Whether you’re struggling to pay your monthly mortgage costs or simply want to save some money annually when it comes to this finance, it pays to investigate refinancing your loan every so often.
However, just like getting a new mortgage in the first place, refinancing takes time, effort, and know-how. You want to avoid some common mistakes as you go about the process.
- Not shopping around
- Too much debt
- Not checking credit score
- Refinancing at the wrong time
- Refinancing too often
One of the biggest issues is people not putting enough time and effort into shopping around for the best possible refinancing product. If you’re going to get a new loan put in place, ensure it gives you a better deal with lower rates and more favorable terms than your current mortgage.
Do your research on the available lender options since there are many these days. It pays to search online for things like “Mt Pleasant refinance” or “Miami refinance deals” and the like to see which lenders operate in your area or online and are worth a more in-depth look.
Don’t just examine general home loan rates on offer, but also factors such as set up or cancellation costs, allowances for early payments, the ability to set up offset accounts, and more. Plus, focus on the lenders who are most likely to approve a refinancing deal for you based on their application and other criteria.
Another mistake people make is not considering that the more debt they have to their name (across the board, not just when it comes to property), the harder it is for banks and other financial institutions to feel comfortable backing them or giving them reasonable rates.
As such, if you know that you want to refinance a home loan in the coming months or next couple of years, avoid running up any additional debt wherever possible. This includes student or personal loans, car loans, credit card debt, and so on.
When was the last time you checked your credit score? If the answer is never or many years ago, it’s time to do something about that. After all, banks and other lenders will generally always check your rating as one of the first steps they take when considering you for a mortgage product. If your score is not the best, you can put a roadblock in your own way right from the start.
It’s worth getting a comprehensive credit report (there are free annual options available) to see if there are any errors on your account. Check for unpaid debts that may have been put under your name mistakenly, or if there are accounts you know you settled but that aren’t showing up as such on your score. Fix these types of issues ASAP to help your refinancing applications. Plus, it’s best to find ways to pay off debts and get your score looking better before applying for a refinance option.
Getting the best possible refinancing rate and terms comes down to timing in a way, too. For example, there’s not much point going to the trouble and expense (once you factor in fees) of refinancing if the deal you get on the new loan is not much different from your current interest offering. It might be better to wait a few months and see if there’s a drop in rates in general in the industry.
Also, if you know you’re about to get a raise in salary or that your business, if you’re self-employed, is about to be valued at a much higher rate or otherwise boom, it’s wise to wait until you have the higher numbers to show lenders. The same goes if you’re expecting some other financial windfall in the coming months. Financial institutions always want to see details of your salary or other income and your assets and liabilities, so the better your situation, the better the deal you should receive.
Lastly, try to avoid refinancing too often. Many people who have already refinanced their mortgages in the last couple of years have been rushing to go through the process again, with interest rates being so low recently. However, this won’t necessarily do you the favors you think it will because refinancing isn’t free.
Each time you do this task, you have to pay a percentage of the loan balance in closing costs and often have to cover set-up or other fees for the new product, too. Before you refinance again, run the numbers. You want to feel confident that the amount you’ll save in interest over time will cover the expense of changing loans.
Refinancing can be an excellent strategy, though, so make sure you do your research. Consider all the above mistakes and do your best to avoid them, and your bank balance will thank you.
Disclaimer: MoneyMagpie is not a licensed financial advisor and therefore information found here including opinions, commentary, suggestions or strategies are for informational, entertainment or educational purposes only. This should not be considered as financial advice. Anyone thinking of investing should conduct their own due diligence.