Many homeowners are still skeptical about the idea of refinancing. Is it really beneficial? If there are benefits in the first place, do they outweigh the disadvantages? Would you rather continue paying than go through another painstaking mortgage process?
Outlined in this article are the most common misconceptions about refinancing. Take them into consideration before you waive the opportunity to re-mortgage when it is most conducive.
Rates Are Still Dropping
Locking in on a rate is a game of hit-or-miss. Yes, the interest rate climate has been on the low for some months now. The controversial vote that removed Britain from the European Union caused a positive ripple for the US housing market. That created a new normal for the industry. People started to take advantage of the new record lows, a very good opportunity to both purchase and refinance.
However, rates are only as volatile as the factors that control them. There is no sure-fire way to determine how the rates would fare in the future. Today, rates surged highest after the Brexit phenomenon.This might be a telltale sign of a coming hike. If you feel that the opportunity is advantageous for your current situation, it would be advisable to lock now.
Too Much Hassle
Refinancing is more or less the same process you went through when you first purchased your home. You are more likely to already possess majority of the documents required and this time, you are more familiar with the process. To ease your anxiety, you can read this articleabout the overview of the Refinancing process so you will be more informed and confident when you first talk to a lender.
Refinancing, contrary to what many think, is an opportunity that if used at the right time, would give you benefits throughout your entire mortgage journey.
Refinancing Can Be Done Any Time
You can always go to a lending institution and find a lending professional who is willing to help you take a second mortgage for your home. But that does not mean it is also beneficial for you at any time. Your financial situation is a prime factor to consider when looking to refinance and that in itself is subject to variance in circumstance. Assess your need first and weigh the balance between the benefits and the disadvantages. Base your decision on evaluated information.
There is No Reason to Refinance
There are plenty of reasons why people decide to refinance. New mortgage rates that are lower than your original rates may save you money on monthly payments. Choosing to shift into a shorter term smartly saves you interest payments throughout the life of the loan. Those who have adjustable rate mortgages could decide to take a new mortgage with a fixed rate instead for peace of mind. Another very common reason is how refinancing helps you tap into your home’s equity and take out a loan to fund some family emergencies, home improvements, etc. Depending on your current situation, refinancing could ease the burden on your original home loan or relieve some immediate financial need.
I Should Only Refinance with My Current Lender
Wrong. You definitely have the freedom to shop around for rates. Compare your options and choose the best offer not just based on rates but also on lender reputation.
I May Not Be Qualified to Refinance
Opportunity comes to those who look. It is true that not all borrowers get approved for refinancing but many people do. Meanwhile, if you have a bit of an issue in your requirements, there are government refinancing services that provide easy refinancing with looser requirements for those who are eligible. Read about the Affordable Home Refinance Program and see if you qualify. Better take advantage of it now before it expires next year.
I Have to Start From Square One
It all boils down to the reason why you choose to refinance. If your purpose is to get lesser payments monthly, for example, and take out the same 30-year fixed-rate mortgage, you will have to start again. In this case, you have to calculate your break even point before pushing through the decision.
If, however, you choose to refinance to pay off your debt faster, even if you have to start over again, you will cut off a significant number of years for mortgage payments, strategically get rid of paying too much interest, and still enjoy low interest rates, especially in today’s rate climate.
Knowledge is doubt’s cure. Know your situation and what this opportunity really presents you. Then take the decision from there.
Justin McHood is America's Mortgage Commentator and has been providing expert mortgage analysis for over 10 years.