Common Refinance Mistakes

There are lots of facts to focus on when you’re shopping for a mortgage refinance. If you overlook some key points, though, you may be making the same mistakes as many mortgage shoppers before you. You can avoid getting caught in traps now that could have negative consequences later by knowing what these potential pitfalls are and avoiding them.

Control your cash-out

In the recent past, the cash-out mortgage refinance, where homeowners borrowed extra money when they did a mortgage refinance, was all the rage. Unfortunately, that type of borrowing got many people into serious financial trouble when housing values dropped, and they found themselves underwater on their mortgages.

Know your break-even period

If you’re going to refinance, it’s going to cost you. It may feel like first mortgage déjà vu, because you’ll be required to pay closing costs again, including fees for appraisals, credit checks, title insurance, application, and points, to name a few.

Appraisal shock

The ultimate determination of whether you’ll qualify for a mortgage refinance or not will depend partly on your appraisal, especially if you’re in an area where real estate values have dropped. Prepare yourself by checking with a local realtor, and asking for a list of recent properties that have sold that are comparable to yours. This will give you some idea of how much your home is currently worth. Before the appraiser comes, fix any obvious problems that may be an eyesore, like broken windows or messy landscaping.
As the old saying goes, “Fool me once, shame on you…fool me twice, shame on me.” The above traps have fooled many borrowers. Now that you know them, you can easily avoid them, and your mortgage refinance will definitely give you the benefits that led you to do it in the first place. Want to find out about more pitfalls in the refinancing world? Give First Option Mortgage a call to find out how easy and safe a refinance can be.

Five Reasons to Refinance Your Home

Lowering the rate 

The mortgage interest rate that you’ve been paying may be higher than what’s available on the current market, so it may make sense to refinance to a new low rate. If you’ve recently improved your credit score and financial situation, a refinance may be the right move because you’ll be able to snare a better rate. It will reduce your monthly payment, and could lower your total interest costs.

Building equity more quickly

In certain scenarios, a higher monthly mortgage payment can have financial benefits. The higher payment allows you to build equity and reduce debt faster. The combination of higher equity and lower debt adds stability to your overall financial picture. You can achieve this goal by restructuring your home loan into a shorter maturity. The traditional choice is a 15-year mortgage, because they have slightly lower interest rates than 30-year loans. Your monthly payment would still be higher because you’d be paying the debt off over a shorter period of time, but your total interest costs would be substantially lower. 

Raising cash

A cash-out refinance is a viable option when you need money to purchase a long-term asset. Examples are home renovations, a college degree, and real estate property. Cash-out refinances don’t make sense for vacations, clothes, and cars.

Lowering your risk

Refinancing to a fixed-rate mortgage can reduce risk if you currently have a balloon payment loan or adjustable-rate mortgage (ARM). Today’s low inflation level may make your ARM seem pretty attractive, but there’s no telling what could happen in a few years. Balloon payments are scary because you can’t predict what the lending environment will be like when your big payment comes due.

Consolidating debt

If you have two mortgages, consider consolidating them into one with a mortgage refinance. Your goal is to have an overall lower interest rate and payment, assuming that you have at least 20 percent equity in your home.

Refinancing is a good way to build equity faster, finance a long-term asset, and to lower your rate, your overall interest costs, or your risk. These could all be considered “right” reasons. However, which one is the right reason for you and what is the best way to do it? Call one of our refinance specialists in order to pinpoint where you should be heading next!

The Cash-In Refinance

You've heard of the cash-out refinance. That's when the new mortgage is for a bigger amount than the old loan. The homeowner receives a check for the difference at closing. In a cash-in refinance, the refinanced mortgage is for a smaller amount than the old loan. The homeowner takes a check to the closing.

Why would you do this you ask? There are four major reasons why this is a logical choice for borrowers:

1. Getting the best mortgage rate – Also if you are underwater on your mortgage, you may not qualify for the refinance. Bringing money to the table can change that.
2. Eliminating PMI (Private Mortgage Insurance)
3. Avoiding a jumbo loan (loans generally between $417,000 and $729,750)
4. Shortening your loan term with reasonable monthly payments

These reasons and several more are making the cash-in refinance much more attractive to borrowers who are attempting to soften the blow to their monthly cash flow.

Would you like to find out if this is your best option? Want to know how much you need to bring and what fantastic changes that means for you? Give one of our refinance specialists a call to find out today!