Avoiding Mortgage Refinancing Mistakes

By Doherty • June 23rd, 2011
Common indexes used for Adjustable Rate Mortga...

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A slower economy has provided some good benefits to homeowners. Financial institutions all over the US are competing for business by offering deals on refinancing. Choosing the wrong offer for a particular loan need could destroy your money situation, but a good proposal could save you thousands of dollars. It is important to explore the many options and learn the basics of different mortgages before deciding which loan is right for you.

Many people solely focus on the interest rates of a loan when shopping around. There are other factors of importance when shopping around such as the amortization schedule, term length, lender fees and closing costs. Lenders are required to provide you with a Good Faith Estimate after you have received an application, but it is wise to request this document before signing on the dotted line. Closing costs can quickly delete any savings you would normally receive from refinancing. Before refinancing, calculate the fees to determine if this will benefit you in the long run. Determine how long you will need to stay in your home before seeing a savings by computing your break-even point.

It is highly recommended that you lock in an interest rate. Many fees will change while a loan is being processed and higher costs may be attached when the final paperwork is complete. Instruct the lender to put the agreed upon interest in writing, confirming it when all is done. Banks do not have to do this unless requested. Adjustable rate mortgages are not ideal for most borrowers unless they intend to sell the property within one year. Long-term owners should understand as interest raises or lowers, so will their monthly expense. Several individuals have found themselves in foreclosure status due to extremely high payments.

Individuals, who entrust one institution with all their banking needs, should not automatically accept their loans. Shop around for the best rates and bring a Good Faith Estimate back to your current institution to see if they will match or beat it. A loan is normally acquired for a huge purchase and no one should have to settle for a higher rate. Even if you received prior loans from your bank, there is still a requalification process. Predatory lending is still a common practice within the market. Despite laws to protect borrowers, predatory lending is still common practice. These charges are usually on interest rates and lender fees. Banks are profit making businesses and will continue to get the most out of every customer.

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