Don’t Make These 5 Refinancing Fumbles

With mortgage rates at all-time lows, now is a good time to consider refinancing. But just because rates are low doesn’t mean you should jump into it unprepared. People who don’t do their homework may come to find that refinancing isn’t for them or that they could have gotten a better deal if they had done more research.

Online mortgage exchange Lending Tree recently surveyed its network lenders about the biggest mistakes consumers make when attempting to refinance their home loans. Here are the top five:

• Overestimating the value of the home. Homeowners still tend to overvalue their homes, despite the fact that home values have been dropping. Track home prices in your area to get a good idea of how much your house is currently worth.
  
  
• Hesitating to lock in low rates. Some homeowners feel like rates will continue to drop and want to wait until they reach the very bottom. The problem with that is they miss the opportunity to lock in with the current low rates. Once rates start rising again, they could do so quickly. If interest rates fall after you close, you can always refinance again.
  
  
• Focusing only on interest rates. Yes, low interest rates are important, but they’re not the only factor. Lender fees, loan terms and lender reputations also play a part in your decision to refinance. It may turn out that refinancing doesn’t make sense in your situation, or that the company with the lowest rate is a hassle to work with.
  
  
• Overlooking shorter-term loans. A 30-year mortgage isn’t your only option. One of the great benefits of refinancing is lowering your monthly payments while also shortening the life of the loan. A 20- or 15-year mortgage can significantly reduce the amount of interest paid.
  
  
• Not knowing what documents are required to refinance. If it’s been a while since you have taken out a mortgage or refinanced, you may be surprised by how much documentation you need to provide to get a loan. Be prepared to show pay stubs, two months of bank and other financial statements, two years of W-2s and two years of tax returns if you’re self-employed.

The best thing you can do if you’re contemplating a refinance is to be prepared. Most people don’t think about their mortgage interest rate or home value until there’s a problem. Doing some research should also help alleviate anxiety associated with today’s real estate market.

Check out this case study for an example of how Pinnacle clients are refinancing to lower monthly payments and the length of their term. Because of their refinance, the homeowners featured should be able to pay off their mortgage in eight years.