If you’re considering a new home loan to take advantage of today’s refinance mortgage rates there are a number of common mistakes that could make this a losing proposition. Mortgage refinancing pitfalls include paying junk fees at closing, accepting discount points, and not checking your credit reports before applying. Here are several tips to help you avoid the common mortgage mistakes that are currently costing your neighbors thousands of dollars.
Beware Mortgage Lender Junk Fees
One of the most common refinancing mistakes is focusing only on refinance mortgage rates at the expense of fees. Lenders have several tricks up their sleeves when quoting interest rates that can lead to overpaying. First, advertised refinance mortgage rates are typically based on a credit score of 780 or better. If your credit score is less than this, your mortgage refinancing quotes will come in higher than what lenders are advertising.
Second, lenders quote lower refinance mortgage rates that include discount points. If you want the interest rate advertised, you will have to fork over the points at closing. How much do discount points cost? It depends on how much the lender is quoting; however, one discount point is one percent of your home loan amount paid at closing and should lower your refinance mortgage rates by .25%. Is it worth paying discount points in today’s market? Absolutely not.
Check Your Credit Before Applying
Another costly mistake is not checking your credit reports and score before applying for mortgage refinancing. The rate quotes you receive are based on your credit score and loan-to-value ratio; however, if you’re being quoted more than what lenders are advertising the likely culprit is your credit. Before applying for mortgage refinancing you’ll want to carefully review your credit reports at the AnnualCreditReport.com website. (Congress passed a law several years ago requiring the credit bureaus to give you a free copy of your credit report every year and this is the website to get them.)
Once you have reviewed your credit reports for errors there are steps you can take to make sure credit isn’t holding you back from lower refinance mortgage rates. Pay down the balances on your credit cards as much as possible. This will get you the most bang-for-your buck when it comes to improving your credit score. Avoid opening new accounts for at least 90 days prior to mortgage refinancing and make sure you pay all of your bills on time.
You can learn more about getting today’s lowest refinance mortgage rates while avoiding common mortgage mistakes 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.
