Five Ways to Mess Up Your Mortgage Refinance
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Thousands of homeowners see the benefits of refinancing current loans in favor of really low interest rates. Even so, a refinance is difficult; home values are down, and paperwork demands are up. Because of this, it's easier than ever for homeowners to botch their refinance. To help you head off a few of the most common refinancing mistakes, avoid these five missteps.
1. Be unrealistic about your home's value.
The appraisal is king when it comes to value. Most denied loans are a direct result of a below par appraisal. Lenders simply won't lend more than the assessed value of your home. Numerous homeowners dismiss decreasing property values in their area, and continue to believe that their homes are worth more than the market dictates. For an uncomplicated closing, be honest with yourself about the market value of your home.
2. Wait to lock in your rate.
Lock your rate sooner than later. Rates could climb high enough that refinancing is no longer beneficial. Besides, rate locks come with expiration dates, making it advantageous to add in several days of cushion to account for possible delays. For instance, if you have a 30-day limit on your rate lock, it is smart to arrange for your closing on the 25th day rather than the 30th. This way, you don't lose your rate due to unforeseen problems.
3. Start renovating your home.
It's the appraiser's job to provide an estimate of your home's market value. Unfortunately, your home's value decreases if the upstairs is in shambles or your bathroom wall is missing. Once the appraiser is done and your loan closed, feel free to demolish to your heart's content.
4. Ignore your lender.
Everything in real estate is time sensitive. When your lender calls to ask for documentation or fresh copies of specific items, provide those immediately. If you drag your feet, don't be surprised if your refinance falls through.
5. Reset your loan term.
If you choose to reset your loan term by tacking on 15 to 30 years, you will spend thousands in extra interest. On the other hand, if you refinance and reduce your term by just five years, the savings pay off. If you had a $200,000 mortgage financed at 5 percent APR, you would save $35,758 in interest if you pay off that loan in 25 years instead of 30.
