With housing loan interest rates (IR) hitting record lows in the past couple of years, property owners can save tons of money by remortgaging their housing debentures. But it is not as straightforward as finding an excellent IR and jumping on the bandwagon – there is a lot more to it than what meets the eye. This article will take a closer look at some mistakes that property owners usually make when refinancing their mortgages.
Not shopping around
It is pretty amazing how most borrowers simply go straight to their banks when they need a housing loan or a remortgage. Or how many individuals check a couple of advertised IR and pick financial institutions offering the lowest one available on the market.
Or who assume they have to refi with their current financial institution. When shopping for a housing loan refi, it pays to check out other lenders. A difference of one-eight or one-fourth of a percentage point of their debenture rate can mean saving a lot of money over the debenture term. Housing loan pricing can also be very complicated, with most factors affecting the cost, so it pays to look into interest rates, fees, and terms offered by various lenders very carefully. People need to take their time and find the best deal possible. Check out sites like refinansieringslån.net for more info about this topic.
Fixating mortgage rates
One of the most common and biggest mistakes property owners make is focusing on the IR when comparing housing debenture lending firms. Tons of factors go into loan pricing, and a low refi range from one lending firm can actually cost more than higher rates from other organizations. Closing costs can differ widely from financial institution to financial institution, and a low IR is usually used to disguise a debenture with pretty high fees.
Usually, advertised IRs are based on the person paying for discounts, a way to get lower IRs. People need to make sure that they inquire about these things as the debenture origination fees, credit reports, points, as well as other charges, before they apply for a debenture. These are not finalized until they receive their Good Faith Estimates once they apply, but a lot of significant changes at this point are red flags – usually, something is wrong.
Not enough savings
If an individual is only getting a minor reduction in their IR – say half of the percentage point – it is going to take them a long time to recover their closing costs. It is called the break-even point. It is where property owners will know how long it will take their savings from remortgaging to exceed what they paid to refi.
For instance, if the borrower paid $10,000 in closing costs and they saved $200 per month by remortgaging, their break-even point is four years or fifty months. But if the person saves only $100 every month, it will take them at least eight years to break even on their cost. There is a good chance that they had already sold the house and moved to another house by then.
A lot of experts suggests that property owners should knock at least three-fourths or 1% off of the property owner’s current IR to make remortgaging worthwhile. High-end properties can justify smaller rate reductions compared to modestly priced houses since the savings are greater. Small reductions can also be worth it if they plan to stain in the house for a long time.
Timing housing loan rates
When IRs are low, people may watch changes in refi rates, trying to go in when IRs are at their lowest. But they usually miss the bandwagon completely and see IRs go back up again. Timing housing loan IRs is like trying to time stock markets – it is pretty hard even for experienced professionals. Rates are still lower compared to what they have been for the past fifty years. Getting greedy over a small percentage could translate to lost opportunities.
Remortgaging too often
With IRs is nearing all-time lows, a lot of individuals who have already refi their housing loans are rushing to do it again to lock in the lowest rate available in the market. While that is a good and attractive opportunity, it is one that can lead them into a deep hole if they are not careful. The problem is that these things cost a lot of money. To refi a housing loan, people will usually pay about three to six percent of the debenture balance in closing costs, maybe less on high-balance credits.
So for a refi to make a lot of sense, people need to save enough in IR to cover closing costs eventually. Some property owners make the mistake of remortgaging too often because they are chasing the lowest possible interest rates. They pile up costs over time, so their debenture balance keeps going up – negating the advantages of refi in the first place.
Not reviewing Good Faith Estimates and other necessary documentation
Good Faith Estimates are breakdowns of total costs of mortgages, including Annual Percentage Rates and all fees. Borrowers should look it over carefully and make sure this thing matches up with what the financial institutions told them before they applied. If there is a huge difference, they need to consider checking other financial institutions.
Also, they need to check over their final documentation at closing to make sure they match their Good Faith Estimates, especially when it comes to different fees. Some corrupt lending firms will try to tack on different dime and nickel charges at this point of the process to generate additional income on the debenture.
Too many cashouts on home equities
A lot of property owners use a housing loan refi as an opportunity to borrow against their house equity, taking out some funds for home repairs and maintenance, major purchases, or investments. Because the IRs are lower compared to other kinds of debentures and housing loan interests are usually tax-deductible, it is an excellent way to borrow funds.
The issue arises when property owners take out too much home equity that they leave exposed should property prices fall or boost their home debenture payments so much that they have no margin for error if financial issues arise. Individuals need to be very conservative in taking any funds out of their house, and they need to make sure they leave themselves a healthy safety net in house equity.
Stretching out the debenture
A lot of home buyers start out with thirty-year loans. By the time they are ready to remortgage, they have been paying on it for a couple of years. But if they refi into new thirty-year loans, they are starting over again. Extending the mortgage like this can greatly minimize their monthly amortizations.
After all, they are spreading out their remaining debenture principal over a longer term. But it will cost individuals more in IR fees in the process even if they get a lower loan rate because they are paying the debenture balance over a longer term. The best approach is to remortgage into a shorter and new term debenture that matches the time left on the current loan.