Common Mistakes When It Comes To Refinancing

There are many reasons for refinancing your mortgage. Refinancing can reduce your interest rates, your monthly payment, or both. Often, refinancing is an effective way to consolidate debt and to reach your long term financial goals.

However, there are many common mistakes when it comes to refinancing, some of them so serious they could cause you to lose your home. Identifying pitfalls is the best way to make a refinancing decision you will not later regret.

When refinancing, you do not want to eliminate all the equity you have worked so hard to build. Home ownership is all about building equity - it is the equity in your home that makes it one of, if not the most valuable investment you will ever make.

This does not mean refinancing your home is always a bad financial decision - in fact, often refinancing can be a big step toward reaching your long-term financial goals. And it is the equity in your home that allows you to refinance in the first place. What you want is a loan that allows you to borrow against some - but not all - of your equity.

The most common mistake homeowners make with regards to canceling equity is cash-out refinancing. On the surface, cash-out options can appear extremely attractive, because they allow you to take cash out of your loan amount and put it in your pocket. You can use the cash to pay off debt, but taking cash out reduces the equity in your home, and can even eliminate it altogether.

To avoid this refinancing pitfall, consider a second mortgage as an alternative to refinancing with a cash-out option, especially if the interest rate is higher on the new cash-out loan. Already have a second mortgage? Then refinancing with a cash-out loan is very likely to eliminate all your equity. Instead, you can refinance both mortgages into one new mortgage with a cash-out option.

Another form of refinancing homeowners might regret is refinancing from a fixed rate mortgage (FRM) to an adjustable rate mortgage (ARM). Homeowners often do this to lower their monthly payments, but with an ARM, the interest rate is not locked in. Sure, the payments may be lower now, but if interest rates go up, future payments could be higher than the payments you were trying to reduce.

Refinancing options that homeowners are not likely to regret include refinancing from an ARM to an FRM in order to lock in a low interest rate. This is a decision that is usually made with long-term financial goals in mind.

Another refinancing decision that is generally sound is refinancing to the same type of mortgage with a lower interest rate than the current loan. So long as the borrower expects to remain in the home long enough for the interest savings to cover the cost of refinancing, the borrower usually will not regret this decision.

Low interest rates and a lucrative real estate market have prompted many homeowners to consider refinancing. But with predatory lending on the rise, it is up to you, the homeowner, to protect your investment. Fortunately, the Federal Truth in Lending Act is a safeguard for those who refinance a loan on their primary residence with a different lender. This Act guarantees borrowers the "right of rescission," meaning they can cancel the debt within 3 days of closing. Not many borrowers take advantage of this option, but those who do are not stuck with a refinancing decision they will come to regret.

Related Videos
Play Video Getting the Most from Mortgage Refinance	Play Video Bad Credit Mortgages	Play Video Learn about Mortgage Rates and Points	Play Video How to Lock Your Mortgage Rate Before Lender Hikes It	Play Video How to Refinance to Avoid Foreclosure

Listed below are more articles related to the above article from the "Mortgages Refinance" article category.

People interested in the above article "Common Mistakes When It Comes To Refinancing" are also interested in the related articles listed below:

 

New Mortgage Rules

Frank and Susan Williams bought a house near Hamilton, Ont., this month, they followed a time-honoured tradition of using leveraged financing. With mortgage insurance they only had to put down 5 per cent of the $270,000 purchase price. They went with a closed variable rate at 2.25 per cent and amortized the loan over 35 years. The deal was initiated with a mortgage broker, with Bank of Nova Scotia providing the financing.

Reverse Mortgage for Seniors - How Does It Work?

Are you planning to acquire a reverse mortgage? You can get monthly payments from this type of loan. The loan will come from your equity to your home. The specific nature of reverse mortgage will enable almost everybody to qualify for it. It is very easy to meet the qualification rules of this type of loan. To get a reverse mortgage, you must be at least 62 years old. You must also own your home where you have equity. Lastly, you should be using the home as your permanent residence.

The ABCs of Adjustable Rate Mortgage Loans

When you're in the process of buying a home, you naturally want to apply for a type of loan that will give you the most set of advantages. That is exactly what we will try to check on here. Will applying for an adjustable rate mortgage loan bring your more benefits than disadvantages? That is exactly what we will try to discover here.

You Don’t Need a Genie To Get Your Dream House

If you believe that only the rich can have their own home, you can't be more wrong. All you need to be able to own a house is a stable income and decent savings. You can afford your own home if you have a clear financial goal, and you have the discipline to allocate enough funds monthly to pay for your mortgage.

How to make an Educated Decision when Home Loan Refinancing

The home refinancing process may seem puzzling due to the perceived number of home loan refinancing choices obtainable however if homeowners take time to familiarise themselves with the home refinancing process and accessible home loan options I am sure they will find the process is rather simple.
In this article I will highlight the core home loan refinancing options to be considered including some key factors that should also be considered in order to determine whether refinancing your house is sensible or not.

Learning the Ropes about Taking on a Second Mortgage Loan

Deciding whether or not you should take on a second mortgage loan for your home depends on several factors. After considering these things, that is the only time that you should decide whether this type of financial option is suitable for you or not.

What Every Mortgage Broker Should Know About SAFE Act Testing

The SAFE Act requires that all residential mortgage loan originators must be either federally registered or state-licensed. All state licensed and federally registered mortgage loan originators must be registered with the NMLS, which is maintained by the Conference of State Bank Supervisors and the American Association of Residential Mortgage Regulators.