7 Dumb Mortgage Refinancing Mistakes to Avoid

1) Blunder No. 1: Refinancing without benefits

Best way to refinance home and be effective is if interest rates are lower by at least 1 percentage point.
Alternatively, try to follow the national average as rates keep changing
A 30-year loan at 5% refinanced to 4.5% 30-year loan doesn’t make sense
Trying for current national average 4.24% or lower could be better
Refinancing is not worthwhile for less than 20% equity
Lower your debt to income ratio before refinancing or invite burden of PMI expenses

2) Blunder No. 2: Not focusing on APYs as well as APRs

Searching for lowest possible rate on refinance my mortgage means knowing difference between APR and APY
APR is normally associated to mortgage loans that come with closing costs and origination fees
Figure in all costs, fees and compounding interest periods in addition to rates
APR is simply periodic rate of interest multiplied by number of periods in year not including other costs, fees and compounded interest. You may end up paying more.
Use mortgage calculator to compare both APR and APY rates on a mortgage

3) Blunder No. 3: Not using credit score to your advantage

Higher credit scores are best to gain lowest interest rates when refinancing a house
With weaker scores, wait and improve scores by lowering debt, making on-time payments and correcting credit reports
Boost scores sufficiently to gain significant reduction in interest rates
With a 1% difference in rates you could save over $70,000 in total interest paid over a 30-year loan term

4) Blunder No. 4: Not avoiding ‘no-cost’ refinancing

No-costs refinance mortgage are actually costs rolled in with principal amount
If you do not pay upfront costs and fees, you’ll pay interest on them too plus a higher interest rates on entire loan
It is only for those who aim to leave or sell home in few years’ time saving money on initial installments made

5) Blunder No. 5: Missing the best option Refinancing

Choosing a suitable refinance home loan should save you money over entire loan term
An initial lower arm will be increasing continuously – refinance to lock in a low fixed rate
Take advantage of no prepayment penalty by making more than monthly mortgage payments
This shortens loan term several years as well as saves on total interest paid

6) Blunder No. 6: Not keeping breakeven point in mind

Refinance home mortgage usually makes sense to home owners planning on staying entire loan term
It will take some years to reach breakeven point – months you spend recovering extra costs on refinance
Savings will increase only when you cross-breakeven point
If you leave home before breakeven point, you have lost the advantage

7) Blunder No. 7: Taking cash out when you refinance

Taking cash out with home mortgage refinance could be a big mistake unless you really need to
Cash-out makes your mortgage bigger than before
You lose equity and borrowing potential for future needs
Cash-out refinance carries higher interest rates than non cash-outs

Important Tips to Know for Mortgage Refinance