Avoid committing 4 mistakes to maximize the benefits of refinancing

You can take out a mortgage refinance loan with comparatively lower interest rate if you are paying high interest rate on your home loan as compared to the current market rate. Read on to know about the benefits of refinancing and what mistakes you should avoid in order to maximize the benefits of refinancing your existing home loan.

What are the benefits of mortgage refinance?

One of the greatest benefits of mortgage refinancing is that the monthly payments become affordable as you need to make the payment on a relatively lower interest rate. Some other benefits of refinancing are discussed below.

Shorter loan term: You can shorten your mortgage loan term with the help of refinancing. By reducing the loan term of your mortgage loan, you actually save a substantial amount that otherwise you’d had to pay as interest.

Consolidate first and second mortgage: By taking out a mortgage refinance loan, you can consolidate your first and second mortgages into one. Thus, it becomes easier for you to manage your home loan.

Cash out-refinance: If you take out a cash-out refinance loan, then you can use the extra amount to pay off other debts. As for example, you can utilize the extra money to pay your high interest credit card bills thus saving a considerable amount of money on interest.

Change home loan programs: You can take out a mortgage refinance loan to change your ARM (Adjustable Rate Mortgage) to an FRM (Fixed Rate Mortgage). It helps you to lock-in a relatively lower rate of interest for the entire loan term.

Get rid of PMI: You may require purchasing a PMI (Private Mortgage Insurance) if you’re unable to make at least 20% down payment on your home. However, if your home appreciates in value and you continue making the mortgage payments on time, then you’ll be able to build more than 20% equity in your home. At this time, you can take help of refinancing to get rid of PMI.

What mistakes should you avoid in mortgage refinancing?

It is quite important to avoid mistakes while refinancing your existing home loan. Otherwise, you’ll never be able to maximize the benefits of mortgage refinancing. Some of the mortgage refinance mistakes are given below.

Obtaining a mortgage with longer loan term: By choosing a comparatively long loan term, you’ll end up paying much more on your mortgage even if the rate of interest is low. So, do not extend the loan term more than the remaining time on your existing home loan.

Opting for mortgage refinance quite often: It is true that you may take the advantage of a comparatively lower interest rate when you refinance your home loan. However, you shouldn’t refinance quite often as every time you take out a new loan, you need to pay the closing costs that are quite high.

Failing to lock-in the rate of interest:  Interest rates keep on changing. So, if you fail to lock-in the interest rate, then it may increase by the time your loan gets processed. Therefore, lock-in the rate when a lender offers you a favorable rate of interest on your new home loan.

Not reviewing documents properly: Not reviewing the documents is another common mistake that people often commit while taking out a mortgage refinance loan. Make sure you review the documents properly before signing them so that you have a clear idea about the terms and conditions of your new home loan.

Apart from considering the above factors, it is advisable that you also consider the closing costs, loan origination fees, points, etc. along with taking into account the interest rate while refinancing your existing mortgage.


Keyphrase: mortgage refinance

Description: Check out how to avoid committing 4 mistakes in order to maximize the benefits of mortgage refinancing. Know bout the benefits of mortgage refinance.