Despite rising interest rates over the past few years, refinancing may still make sense for some homeowners. However, if you are a first-time refiner, you may have many questions about what the process is like. You may also have found some incorrect information. Let’s dispel some common myths about refinancing your mortgage.
Myth 1: Refinance is not costly
Don’t be afraid. Homeowners usually hear a lot about how much money they can save by refinancing their mortgage, but they rarely hear about the upfront costs of doing so. It is true that you don’t have to pay a down payment, but refinances are still mortgages, and like your first mortgage, Closure costs.
The cost of refinance closing costs can reach 2-5% of (new) loan principals. For example, if your $250,000 mortgage costs 3%, your prepayment is $7,500. Many lenders allow these costs to be involved in new loans. Refinance closing costsincreasing the number of principals that must be repaid. This option will be more expensive as it will increase interest in the overall loan.
Myth 2: Interest rates are the most important factor
For many homeowners, the name of the game is Best Mortgage Interest Rates Possible. However, the term of the loan is another factor that borrowers should consider before refinancing. Because it can affect how much you actually save.
Michele Sine, portfolio manager and senior wealth advisor at ImpactAdvisor, will reset your payment clock if you refinance for a loan over the same period. For example, a homeowner who has paid a 30-year mortgage for 10 years will reset to zero if he refinances for another 30-year loan. This additional time (120 additional monthly payments) is incurred as the initial payment primarily covers interest from the service provider.
“When it comes to payments, it’s an uneven playing field. In short, banks get money first so they always win,” says Sign.
Homeowners who want to save money on the life of their loans can refinance for lower fees and short-term loans (from a 30-year fixed-rate mortgage) 15-year fixed-rate mortgage). Alternatively, they can make additional monthly payments to pay off the loan faster.
Myth 3: Refinance affects the sale of homes
Mortgage refinance will not be added Limited At your home. Simply exchange the main lien of the home for a new one. This means that refinances will not affect your home sale or taint the title.
Refinance is strictly based on your ability to pay off your loan, as evident from your credit and employment history. This means that there will be no restrictions on future sales more than the original mortgage has done.
Confusion often arises due to two other types of debt that use your home as collateral. Home Equity Loan (aka 2nd mortgage) and the Home Equity Credit Line (HELOCS). People with major mortgages often take these out when they need funding for something, such as home improvements or repairs. In such cases, it is true that you cannot sell your home until you pay back those loans or settle them immediately. closure.
Myth 4: No credit check required
It may be surprising that lenders need a credit check to refinance their mortgage. If you are paying off your loan on time, why do lenders want to double-check your credit? Because for them, it is a new loan, they have to examine the borrowers for the current state of their finances.
“In general, homeowners Credit scores above 760 says Leslie Teine, founder and head of Taine Law Group in Westchester County, New York. “The lender will be looking for you Debt to Income Ratio (DTI) Being less than 36% to ensure you don’t have too much debt and can pay off your loan properly. Some homeowners may be surprised to find out they are not qualified. ”
Therefore, before applying for a refinance, check your credit score and calculate your debt-to-income ratio. The purpose of refinance is to acquire it Best ratewe recommend that you make sure your financial situation is sufficient to get it, or at least significantly reduce your current rate.
Myth 5: Refinance your mortgage only once
Another myth about mortgages is that you can only refinance your mortgage once. In fact, there is no limit to how often you refinance your mortgage. However, the fees are substantial, so you pay to make sure each refinance makes sense. Use a Refinance calculator See if this is the route you’re taking, especially if you’ve refinanced your mortgage over the past few years.
It also needs to be suspended between applications. “In reality, you can refinance your mortgage as many times as you like, but many lenders do. “Seasoning” periodOr maybe it takes time between refinancing before it’s comfortable to approve another,” Tayne says. Prepaid penalty With your loan, if you try to refinance again, you may be charged. ”
Myth 6: If rejected in the past, you cannot apply for a refinance again
Another myth is that if you are rejected, you will never be able to apply for a refinance again. If the lender rejects the application, you can reapply in the future, especially if you address and modify the reason for the rejection.
For example, in your case Credit score It wasn’t enough for refinancing, so you can improve it and apply it again. You can also use multiple lenders to see if you have a more generous credit standard.
