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What Are The Common Refinancing Mistakes?

05.12.2011 · Posted in Wealth Building

It’s actually quite simple – lower interest rates mean refinancing like it’s going out of fashion. Refinancing is an informed decision, according to experts, and it wouldn’t matter what the reason would be for the refinance, may it be completing an auto loan, eliminating a credit card debt or getting a lower payment on your mortgage.

Allied Mortgage Consultants is an up and coming mortgage firm that helps fill consumers in on the nitty gritty of home loans and refinancing, and they have offered us their seven most common mistakes in refinancing everybody should avoid.

Not saving enough to justify refinancing. The decrease in your rate would ideally by no less than .75 percent. This will save you about $100 a month on a $150,000 mortgage.

You have to know your closing costs, plain and simple. By law, closing costs must be disclosed within three days of the loan application. However, there are different ways to go about the calculation. Until the details of your loan are clear, the closing costs quoted to you are only estimates. Always prepare for the worst.

Not knowing why you are refinancing in the first place is dangerous. Sure, you may want to reduce your interest, but the question here is why – it could be for debt consolidation, making a large purchase or whatnot. You can use your tax return as a form of leverage in some instances. Always consult an accountant or tax attorney before making these types of decisions.

Not being aware of APR “teaser rates.” A lot of lenders entice consumers with special deals on the annual percentage rate, but you could end up paying more in the long run. Generally speaking, the APR can be derived from two things – an an accelerated payment plan and a 30-year mortgage. Before biting into these special offers, let this be your guide – APR for LOL (life of loan).

An ARM, or adjustable rate mortgage has its share of advantages and disadvantages. An adjustable rate mortgage will only minimize your monthly payment after a second refinancing. In this case, they can cost more in the long run.

When dealing with mortgage brokers, know what you should expect. Take note that refinancing must be quick and efficient, and it is common to neglect this when choosing a broker. To avoid this, always interview your mortgage broker about details of the performance guarantees and services offered.

One last common mistake would be not knowing the right questions to ask about all your loan options. Because if you fail to do so, you may end up spending more over a minute detail you failed to ask about.

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