Many homeowners rush through the mortgage process because they are too focused on the home they are purchasing. Because of their haste they make a number of mistakes and overpay for the mortgage. After the euphoria wears off many homeowners realize their mistake and start thinking about refinancing their mortgage.
When you refinance your mortgage you are simply taking out a new mortgage in order to pay off the old mortgage. Some mortgages carry prepayment penalties that charge you a fee if you refinance or sell your home. Make sure your current mortgage does not have a prepayment penalty; this penalty could rob you of any potential savings from refinancing the mortgage.
How do you know if refinancing is the right choice for you? Refinancing makes sense if the interest rate on the new mortgage is at least two percent lower than your current rate. Two percent is the standard many financial advisors recommend as it allows you to recoup your expenses from refinancing the mortgage.
Even if your interest rate is not two percent better you can still benefit by securing better terms or cashing out equity in your home. By refinancing your current mortgage for more than is due on the old mortgage you will be able to tap into the equity in your home for cash.
If you have decided to refinance your mortgage you need to be smart when you go about doing it. There are a number of mistakes homeowners make that can cost thousands of dollars. To avoid making these mistakes you need to do your homework and shop for the best mortgage. To learn more about avoiding common mortgage mistakes and predatory lending practices sign up for our free mortgage guidebook: “Mortgage Refinance – What You Need to Know.”
My name is Robert Regehr and I’m a personal finance blogger with a chip on my shoulder for banks and mortgage brokers that take advantage of my friends and neighbors.
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