Five Mortgage Refinance Mistakes to Avoid
Here we go again: in response to the global credit crisis of late 2008, the Federal Reserve has been given the authority to spend a lot of money in the credit markets to bring down interest rates on mortgage refinance loans. In the words of one broker, the Feds have a giant hammer and they are going to use it to pound interests rates down into the ground. By doing this, they hope to help existing homeowners save money on their monthly payments which will, in turn, stimulate the economy as a whole.
As a result, you will be hearing from your mortgage company (and others) about doing a mortgage refinance. If you are seriously considering doing this sort of deal, here are some common mistakes you’ll want to avoid:
- Not shopping around for the best mortgage refinance deal and staying with your existing lender instead.Contrary to conventional wisdom, your current lender may not have the best deal on a mortgage refinance. Nor will it necessarily be easier to deal with them compared to starting over with a new lender. Often, your existing mortgage company will want you to do all-new mortgage refinance paperwork as though you had just walked in off the street. This is because they aren’t really going to hold your mortgage for very long — they’ll just turn around and sell it on the secondary market (and making a commission on the sale). They can do this more easily if they can include a complete application from you in the package to prove that the loan is a good one. Therefore, regardless of how good a customer you have been, your lender will have to verify your financial position all over again.
- Signing your loan documents without reviewing them. Do your homework before coming to the closing. You will not have enough time to review these papers during the actual closing. So review them in advance. The last thing you want is a surprise.
- Not considering the break-even point on your mortgage refinance.Do you know how long it will take for you to recoup your up-front transaction costs? For example, let’s say your mortgage refinance transaction costs are $3000. Let’s also say that you will be saving $100 per month on your monthly mortgage payment. Divide 3000 by 100 and you’ll see that it will take 30 months to save enough to pay back what you spent in getting the mortgage refinance in the first place. So ask yourself: are you planning on staying in your house for the next two-and-a-half years? If so, you’ll recoup your costs. If not, consider a different deal, one with lower costs or a better interest rate with greater savings.Granted, this is just a simple example. Your situation may be more complex. For example perhaps you currently have an adjustable-rate mortgage, or you may be doing a mortgage refinance from a 30-year term to one that is only 15 years. If this is the case, the break-even point may be harder to calculate.Also, you may not be doing a mortgage refinance simply to lower your payment. Perhaps you are doing it to pull cash out of the equity in your home in order to consolidate multiple debts into a single payment. If so, a break-even analysis on your transaction costs may not be that important to your decision.
- Not giving your mortgage company the mortgage refinance documents on time.When your lending institution requests that you provide them with additional documentation (i.e., income and expense statements, verification of employment, etc.) don’t procrastinate. Send them along right away. The last thing you want is to be the reason that a costly delay occurs.
- Not getting an estimate of your mortgage refinance closing costs in writing.Once your mortgage broker or lending institution approves your application, the law says they are required to give you a written statement of what your fees will be for the mortgage refinance. This statement is called a “good faith estimate” (GFE). Bring it with you to the closing when it is time to sign all the final documents. If the fees are significantly higher at closing than what is shown on the GFE, then you should insist that they be brought in line with the GFE.
Related posts
How a Mortgage Note Buyer Can Help Your Financial Situation
If you are holding on to real estate and just can’t seem to get any qualified buyers through the door, then you may want to consider owner financing. By financing the loan for the buyer, you keep the title to your house, increase your cash flow, and will actually sell your property much faster. That being said, sitting on a note for thirty years is not necessarily the best way to make money, so you may want to consider selling the note to a mortgage note buyer.
The primary reason why a mortgage note buyer is more important than ever these days is because banks are being very difficult when it comes to financing any real estate. Even people with exceptional credit find that they have to wait months for a mortgage application to get approved. One way that property owners are finding it easier to sell their properties is by financing a loan for the buyer.
This can be somewhat risky business, since the homeowner is taking the place of a bank, and for this reason, getting a mortgage note buyer in is not a bad idea. The note buyer buys the mortgage from the homeowner, essentially taking over the loan and paying off the original homeowner.
Tags: bad idea, banks, best way to make money, cash flow, financial situation, getting a mortgage, mortgage application, mortgage note buyer, owner financing, paperwork, profits, property owners, real estate, risky business, thirty years, way to make money