For many homeowners, plummeting interest rates is a cue to apply for mortgage refinancing.
Written by Northwest Mortgage
Published on Tue, Feb 16, 2021, Last Updated on Tue, Feb 16, 2021
While it looks pretty straightforward to refinance when interest rates are low, many factors play a role in making your refinancing move a hit or miss. Avoiding the refinancing pitfalls below can help turn that miss into a hit.
1. Not Factoring in the Credit Score
A refinance deal usually offers beneficial prospects that depend on other factors. For instance, getting a low-interest rate will be subjected to your credit score. Many borrowers fail to factor in their latest credit score in the excitement of scoring good refinancing savings. Keep in mind that poor credit scores can offset any payment relief a mortgage proposal offers.
Therefore, get your credit report from any of the three reliable credit reporting agencies and assess how your credit score will affect the interest rate. In many cases, it might not be worth it for low-score borrowers to go with refinancing. Here at Northwest Mortgage, we can run that credit score for you and let you know if refinancing is the right move for you or not.
2. Sealing the Deal without Calculating Refinance Breakeven Point
Many people look at the interest rates and the resultant monthly savings and seal the refinance deal. They don’t calculate the refinance breakeven point and factor it in their decision-making. The refinance breakeven point essentially tells you about the time your refinancing plan has actual savings benefits.
Suppose your refinance plan saves you $150 per month, and you have to pay $3,000 for refinancing closing. In this scenario, you will have to wait two years before reaching the breakeven point. Once you hit that point, that’s when you’ll start saving those 150 dollars every month. If this breakeven point entails too long a wait, you may want to consider another refinance proposal. In the end, it’s also best to look and see the total amount you’ll save minus the closing fee.
3. Sticking with the Existing Lender without Running Rate Comparisons
It seems convenient for many people to get in a mortgage refinance deal with the existing lender since it involves less back and forth. Also, a borrower and a lender already in a mortgage agreement develop a trust that makes it easy for them to sign another deal with each other. As a borrower, you should refrain from signing the existing lender’s refinance offer without comparing it with other offers. Assuming that your present lender will present you with a special discount or deal might cost you a better refinance offer by some other lender. Northwest Mortgage is happy to provide comparison rates.
4. Gambling with an Unlocked Mortgage Rate
Mortgage rate lock offers peace of mind to both borrowers and lenders through the purchasing and closing process. Many borrowers don’t lock it, in the anticipation that the interest rate might dip further. Such a situation can turn on its head, resulting in a rate spike before the formal closing of the deal. The best way to avoid this is to avoid gambling and simply lock your refinanced mortgage rate in once you reach an initial agreement with the lender.
For more great tips on how to approach mortgage refinance deals, get in touch with Northwest Mortgage. We’re a reliable and reputable mortgage lender.