If you are facing trouble in continuing with making mortgage payments and looking for better mortgage terms and conditions, then one option available before you is to opt for mortgage refinancing. Mortgage refinancing offers you the chance to replace your original mortgage loan with a new one with better terms and conditions. The new loan amount that you receive is utilized to repay your original mortgage loan. There are several benefits of refinancing. Refinancing offers you the chance to lower down the mortgage rate and this in turn reduces the monthly mortgage payment amount. With reduced monthly payment amount, you can repay your mortgage loan quite easily. On the other hand, this mortgage program offers you the chance to repay your loan faster. You can also convert an adjustable rate mortgage (ARM) with a fixed rate mortgage (FRM) and vice versa with the help of this program. However, while opting for refinancing, home buyers often commit some common mistakes. Here we discuss about some of these mistakes-
1. Not knowing the APR of the refinance loan
Majority of the home buyers are not at all aware of annual percentage rate (APR). APR is a much broader index of the true cost of a mortgage loan than the rate of interest. Before opting for a refinance loan, you need to shop around well so as to find out the best possible rate. In addition to the mortgage rate, you need to take into consideration the other costs involved in the loan. Other costs include loan origination fee, discount points, taxes etc. All these costs are included in APR. So, before opting for a refinancing loan, it is important to know the APR of this mortgage program.
2. Not locking the rate at the right time
Timing your move correctly is also important to grab the best refinance deal. There are some borrowers who prefer to wait further in the hope of obtaining a much reduced rate. But, rate may not fall further and instead it may start rising. In such situation, home buyers miss out the opportunity of getting the best rate. So, it is important to lock the rate at the right time so as to get the best rate.
3. Not having the documents ready
Refinance is as good as taking out a new loan. All the documents required to take out a new loan are applicable for taking out a refinance loan also. Moreover, in recent times, more documentation is required to obtain a mortgage loan. You should be ready with pay stubs, bank statements, W-2s of past 2 years etc. If you are a self-employed person, you need to keep tax-returns of past 2 years ready with you.
4. Bothering only about rate of interest
It is quite often seen that while applying for a refinance loan, home buyers bother only about the rate of interest, without paying much heed to other aspects. This is however not at all a very smart move. In addition to the rate of interest, home buyers should also take into consideration other costs associated in a mortgage loan.