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List of Myths About Refinancing
Mortgage Refinancing is one of the most important decisions that an individual might have to take many times in his life.
There are a lot of myths that exist when it comes to mortgage refinancing.
In this post, we are going to tackle some of those myths and get more clarity about things that you might want to know before you go through your refinancing process.
For many borrowers, a lower interest rate means a great time to refinance. However, a lower interest rate is not the only factor to refinance your mortgage.
Without further adieu, let us get into these myths and how they affect your refinance.
Myth 1: Refinancing Mortgage Doesn’t Cost Anything
Refinancing a mortgage is not cost-free. What it means is merely taking out a new primary mortgage on your home, just like you took out your original mortgage.
There are going to be costs associated with it.
If you have already bought your house, you know that there are already cost associated with paying the broker, moving and getting your new place fixed up, and all these other factors that are included in your first-time home buying experience.
There are also costs that you might not have realized because they were lesser-known to you. These costs may include the home appraisals, home inspection, mortgage origination fees, title insurance, etc.
It is important to remember two things. First, the basic rule is that the refinancing cost should be roughly between 2-5 percent of the total loan amount.
The second thing is the time it would take to recoup the cost of the mortgage refinance.
Myth 2: Only Refinance to Lower Interest Rate
The interest rate is not the only thing that you should be thinking about when you are refinancing.
When you refinance your current mortgage, you are starting over your mortgage from zero again. Hence, you should also be thinking about the term or the tenure of the loan.
For example, If you have paid your way through the original mortgage that you took for ten years and you are refinancing now with 30 years, you are resetting the clock back to day one.
This means you are adding ten years more to the loan again, which you have managed to pay off from your original mortgage.
That is the only reason why the interest is not paramount. You might also want to consider the term of the loan when refinancing.
Changing the term also allows you to go from a 30 year fixed to a 15 year fixed loan and pay off your mortgage quicker.
Myth 3: Refinancing Impacts a Later Sale
Refinancing mortgage does not impact a later sale. After you refinance, you can always sell your home and pay off the refinanced loan amount.
However, that is not applicable for all loan products. For example, if you have taken a HELOC, you might have to pay off the HELOC before you sell your home.
Most people are not paying off their mortgage and then selling the house, the common practice is to sell the property and later pay off the balance mortgage.
Refinance becomes your primary mortgage; hence, you can pay off the mortgage after selling your home.
Myth 4: Refinance Does Not Need a Credit Check
This is one of the most common myths that many people have. A credit check is always required before refinancing.
That is the only way for the lender to know how creditworthy the borrower is. Your credit score, in the case of a conventional loan refinance, would also help the lender to get the best interest rate in the market for you.
There are few government programs where there might be a possibility for you to get a loan without a credit check. However, it entirely depends on the lender you are working with.
Always make sure you speak to multiple lenders or brokers to get more options on your refinance. Checking your credit and keeping it monitored will always help you to negotiate better with the lenders.
This would also help you to know if any unwanted debts are being reported on your credit, and you could take care of them before you apply for a refinance.
Most of the lenders would have to check your credit before giving you any quote.
Myth 5: Cannot Refinance More Than Once
There is no limit to how many times you can refinance your mortgage. You can refinance as many times as you want, as long as it makes sense to do it.
Some lenders might ask you to wait for some time for your next refinance. In some states, borrowers might have a law making them wait for their next refinance.
Not to forget, there are closing costs involved in every refinance. Hence you might want to make sure that your refinance is worth the cost.
Conclusion
Refinancing a mortgage could be one of the debt tools to either save money on your original mortgage or to use your home equity to get some cash in hand for your emergency expenses.
Whatever your reason is, it all comes down to understanding if refinancing your mortgage is worth the time and money that you are investing in.
Please get in touch with your trusted loan officer to know your options better.
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