Maximize Savings: Steer Clear of These 10 Expensive Refinancing Errors
Refinancing your mortgage can save you a lot of money on interest, but it can also be costly if you’re not careful. There are hidden prepayment penalties and unnecessary closing costs that can eat into your savings. If you make a mistake, you might end up losing money instead of saving it, benefiting lenders and brokers instead.
This article highlights the most common and expensive mistakes homeowners make when refinancing their mortgage, including hidden fees and fine print. By understanding these pitfalls, you can navigate the refinancing process successfully and secure significant savings. Let’s look at where other borrowers often go wrong so you can approach your refinance with full awareness.
**Not Knowing Your Credit Score**
Matt Stevens, a home financing expert and CEO of The Mortgage Genie, points out that many customers are unaware that their credit score has changed since they got their initial mortgage. It’s crucial to ensure your credit score is accurate because a higher score increases the likelihood of your application being accepted and getting better rates, which applies to refinancing as well.
**Not Talking to an Experienced Loan Officer**
Tony Grech, a licensed mortgage loan officer, warns against relying solely on internet or call center lenders. While they might offer good rates, they often treat you as just another number and don’t provide personalized advice. A professional loan officer will take the time to understand your unique situation and goals, offering custom recommendations and explaining the pros and cons of different loan options, helping you make the best decision.
**Not Choosing the Right Mortgage Product**
D. Shane Whitteker, owner and chief broker of Principle Home Mortgage, emphasizes the importance of selecting the right mortgage product. Many people who previously used an FHA mortgage might now qualify for a conventional loan, which could eliminate or improve mortgage insurance terms. Veterans should also consider VA loans, which might be more beneficial than other loan programs. Additionally, streamline refinance options from FHA and VA, like the FHA ‘streamline’ refinance and the VA ‘IRRRL’ (Interest Rate Reduction Refinance Loan), should be considered.
**Not Shopping Around**
Leonard Ang, CEO at iPropertyManagement, notes that many borrowers stick with their familiar bank when refinancing. However, shopping around for other lenders can lead to better rates and significant savings. Don’t hesitate to explore different lenders until you find the best option.
**Refinancing for the Same Length of Time as Your Previous Loan**
John Li, co-founder and CTO of Fig Loans, identifies a common mistake where homeowners refinance for the same loan term as their original mortgage. This approach might not always be the best financial decision.