If you’re considering a mortgage refi to take advantage of the best refinance rates in nearly 50 years, there are a number of common mortgage mistakes from bad mortgage refinancing advice that can cost you thousands of dollars. Accepting unnecessary markup of your mortgage rate or rolling closing costs into your loan balance may be tempting to avoid paying at closing; however, the amount coming out of your pocket in the long run can be staggering. Here’s an example from the Washington Times illustrating how bad mortgage advice can cost you thousands of dollars.
Your loan officer’s assertion that the loan balance doesn’t matter because you won’t hold the loan for the full 30-year term is ridiculous. If you decide to sell in five years, you can see that the $345 monthly savings goes away because you owe almost $20,000 more to pay off the loan. If you sell in 10 years, your payment savings total $41,400 but your balance only drops to $233,563. If you don’t refinance, your balance drops to $200,834, a difference of $32,729. This is only $8,671 less than the total payment savings.
http://www.washingtontimes.com/news/2011/may/26/bank-loan-officer-gives-bad-advice/
Even if you’re not rolling the closing into the loan balance many brokers will try to sell you a no fee refinance by taking a higher mortgage rate. This markup of your interest rate adds as much as $100 a month to your monthly payment, which doubles, even triples what you’d be paying over the course of ten to fifteen years. Unless you’re only planning on keeping the property for a few short years, it almost always makes sense to pay your closing costs up front.
Paying junk fees not only raises the amount of cash you’ll have to come up with at closing but lengthens the amount of time it takes to realize any benefit from your mortgage refi. You have to recoup the closing costs and loan origination fee from your new home loan before realizing any savings; the more you pay at closing the longer it will take to recoup your expenses.
Common junk fees include the rate lock fee, application fee, loan-processing fee, and the broker courier fee. You can learn more about paying less for your mortgage refi by checking out my free Underground Mortgage Videos.
My name is Rob Regehr and I’m a personal finance writer with a chip on my shoulder for banks and brokers that take advantage of my friends and neighbors.
