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7 Common Mistakes When Refinancing A Low Mortgage Rate

July 19, 2022

Mortgage rates are at an all-time low, with those on a 30-year fixed-rate mortgage falling below 3 percent for the first time in 50 years. Record-low refinance rates, accordingly, have opened the doors for many homeowners to want to refinance their existing home loan to reduce their monthly payments, speed up their loan payoff or gain access to their home’s equity.

Also, keep in mind that your credit score is a major factor in determining your rate. So check your credit and consider whether you should work on improving it before you apply.

If you’re considering purchasing a new home, or want to refinance your mortgage, use Credible to connect with experienced mortgage lenders to compare accounts, including rates, points' worth, and costs.


3. Not checking all the loan costs
Refinancing your existing mortgage loan involves creating a new loan, so you can expect to pay closing costs. In general, closing costs on a refinance will range from 2 to 6 percent of the loan amount.

You can choose to pay these costs out of pocket or roll them into the new loan. If you’re short on cash, the second option may sound appealing. But keep in mind that you’ll be paying interest on that additional amount for several years.



4. Cashing out for the wrong reasons
A cash-out refinance allows you to gain access to some of your home’s equity in the form of cash. You can use this money to consolidate debt, buy a divorced spouse out of their stake in the home, make renovations, and more.

But if you use it for unnecessary things like a vacation or to live beyond your means, it could come back to haunt you.

If you’re not planning to stay in the home for that long, refinancing will actually cost you money and likely isn’t worth it. Use an online mortgage refinance calculator to determine your new costs and compare them with the upfront costs of getting the loan.



6. Extending your mortgage
If you’ve been making payments on your mortgage loan for five years, it may make more sense to refinance into a 25-year loan than a 30-year loan. If you refinance with a longer repayment term, it’ll ultimately cost you more money in interest charges, even with a reduced interest rate, because you’ll be making payments for five additional years.




7. Trying to time mortgage rates
If you’re holding off on refinancing because you want to wait until rates go down further, you may regret it. Trying to time refinance rates is like trying to time the stock market—it’s impossible, and you could end up missing out on a good deal if rates increase instead. If now is the right time to refinance for all of your other reasons, go for it.




The bottom line
A refinance can be a great way to accomplish some of your financial goals, but it’s important to know what you’re getting yourself into and how to avoid potential issues that can cost you. 




























SOURCE: FOXNEWS                                                                  IMAGE SOURCE: PIXABAY