Does the idea of refinancing your home sound appealing? If so, it is important that you do not make the following mistakes during the refinancing process.
Don't Assume You'll Save Money
A common misconception with homeowners looking to refinance is that they assume that a lower interest rate will result in them saving money. This is not necessarily true, and you really need to look at your specific situation to find out if you'll actually save money. This is because there are costs associated with getting a home refinanced that you must break-even on, which means staying in the home for a while to benefit from the lower interest rate. You also pay a lot more in interest towards the beginning of the loan, so the length of your current loan will play a big factor in how many years you'll be set back. You may also end up selling your home soon after the refinance, such as due to an unexpected job change, making you unable to see any benefits.
It is always worth it to sit down with a mortgage lender and look at how many years it will take you to break-even on your mortgage with the lower interest rate. If you do not break-even, consider if the lower monthly mortgage payment is enough to justify refinancing.
Don't Refinance For The Wrong Reasons
There are many reasons that homeowners refinance their home, and paying off other debts may be a reason to do so. If you can get a mortgage at a much lower interest rate of other debts, it may be worth it to use your equity to pay off the debts that have a higher interest rate. This is common if you have a lot of credit card debt or student loans that you need to pay off.
Refinancing to pay off debts is a completely valid reason to do so, but it is important that you don't go back to your old ways after paying off the debts. If you got into debt due to your spending habits, you will need to make adjustments to how you spend money. If not, you'll end up in the exact same position with enough time.
These are just a couple of mistakes that can be made during a home refinancing. For more information, you should reach out to a home refinancing service to help guide you through the entire process.