Top mortgage refinance mistakes

TOP REFINANCE MISTAKES

Minneapolis, MN: Mortgage interest rates are great, and everyone is thinking "should I refi" my home mortgage loan? For most people, a home is the biggest investment they will ever make. However, few people do the research necessary to make a good buying decision. The home-purchase process is extremely confusing for most people. With a little bit of homework, and some advice from family and friends who have been through the process before, you can make this a little easier on yourself. There is no substitute for taking the time to educate yourself before you buy or refinance a house, which typically costs you 25% to 40% of your gross income!

#1 Mistake: Refinancing with your current lender without shopping around. Your current lender may not have the best rates and programs. There is a general misconception that it is easier to work with your current mortgage company. In most cases, this is NOT the case, and your current mortgage company will require the same documentation as other companies. This is because most loans are sold on the secondary market and have to be approved independently. So even if you have been very good at making payments to your existing lender, they will still have to do their verifications all over again. Your current servicer / lender also knows you automatically think they are a good place to call, and probably didn't shop around. They clearly take advantage of that. Every single customer I talk with today, I can offer them a better deal then their current lender.

Also be aware that your current lender may appear to cost less because they say they have no, or very low closing costs. When you calculate the higher interest rate vs. closing costs with a new lender, the new lender with lower rates almost always wins. Remember that there is no such thing as a free lunch. Click Here for Closing Cost Information 

#2 Mistake: Choosing a lender just because she/he has the lowest "quoted" rate or cost. Quoting is easy. Anyone can quote. Actually being able to deliver on that quote is something completely different. While rate is important, you have to look at the overall cost of your loan. This includes looking at the APR, the loan fees, as well as the discount and origination points. Some lenders include origination points in their quoted points, while other lenders add an origination point in addition to their quoted points. So when one lenders says 2 points they mean 2 points, whereas another lender means 2 points plus 1% origination. Click HERE for closing cost information.

Other Mistakes:
Not doing a break-even analysis. Find out what the total cost of the refinance is, then figure out how much you will save every month. Divide the total cost by the monthly savings to get the number of months you will have to stay in the property to break-even on your refinancing costs. Example: if your refinance costs $2000 and you save $50/month your break-even is 2000/50=40 months. You should refinance if you plan to stay in the house for at least 40 months. Use our Mortgage Refinance Breakeven Calculator

Note: The break-even analysis only works if you are refinancing to save money. If you are refinancing to switch from an adjustable to a fixed, get cash out, or from a 30-year loan to a 15-year loan, it is much more difficult to perform a break-even analysis.  

Thinking you don't qualify: Many people think they can't qualify, and I don't blame them with all the news about today's lender requirements. Take a few minutes, fill out an online mortgage application, and let a professional Loan Officer make that determination. I do this full time 50-hours a week for 20-years, and even I have a hard time keeping up with the rules!

Thinking the county tax assessor's value is the market value of your house. Mortgage companies do not use the county tax assessor's value to determine whether they will make the loan. Instead, they use a market-value appraisal which may be very different from the assessed value.

The cost of the mortgage, however, cannot be your only criteria. There is no substitute for asking family and friends for referrals and for interviewing prospective mortgage companies. Learn how to Pick a Good Lender. You must also feel comfortable that the loan officer you are dealing with is committed to your best interests and will deliver what he/she promises. Often, the company that has the absolute lowest quoted rate (far from everyone else) may not be telling you something. It is hard to compare apples to apples, when someone is slipping you an orange. Also, be sure to read our article "Beware of the BAD, Good Faith Estimate"