Refinancing Mortgage Loan – Tips on Home Refinancing Do’s and Don’ts
Once you’ve made the decision to refinance your home loan, there are still a few things to keep in mind before you sign on the dotted line. These simple steps can help save hundreds or even thousands on the final home refinance loan you get. Most of these tips are common sense ideas that apply to many financial transactions, but extra caution is appropriate when dealing with what for many borrowers may be one of life’s biggest financial deals. In some cases, the refinance is larger than the original home mortgage loan.
Do: read the fine print
When you want to refinance a home loan, as with any loan, you need to make sure you read and understand the impact of the fine print in your loan documents. If you didn’t realize you agreed that the lender can adjust the mortgage up after two years to match the price index, you could lose your home. If you’re taking a balloon payment and refinancing again in 3 years, make sure you know this up front, not after the paperwork is signed or, even worse, when the balloon payment is due.
Yes: shop for the best rates
When shopping for a home refinance loan, don’t assume that all lenders will have the same rates and costs associated with those rates. It is important to look at the complete package. A lender may have lower rates, but require a balloon payment in six months or two years. Another lender may charge additional points or closing costs to obtain the loan. You may not qualify for some programs when you apply to a lender. However, it’s important that you don’t apply to multiple lenders at the same time, as this can hurt you with poor credit scores.
Don’t: Borrow more than you can afford
Especially in uncertain economic times, getting a variable or adjustable rate loan because you want a bigger home or a better location is not a smart move. The same is true when refinancing a home loan. Don’t borrow extra money just because you can, thinking you’ll pay it back in an emergency. Borrow only what you need to pay off the debt rather than incur new debt, especially if you have nothing to show for the loan later.
No – Ignore Closing Costs and Fees
Refinancing a home loan can be a daunting process. It is important that you understand your obligations and benefits at each step of the process. Many borrowers are surprised when they find out how much it’s costing them to get their home refinance loan, and that’s before considering the interest cost of the loan. Fees such as title insurance, document preparation, points, loan origination fees, and other costs will significantly inflate the cost of the loan. Do not spend the proceeds from your home loan withdrawal until you have determined without a doubt what the proceeds will be.