July 23, 2020
With mortgage interest rates reaching historic lows in the last several years, many homeowners have jumped at the opportunity to refinance their mortgage. Yet, confusion about the refinancing process and its benefits still exist. If you’re on the fence, debunking the seven most common refinancing misconceptions may help you decide whether it’s right for you.
1. Waiting for rates to drop
Waiting for mortgage rates to drop can be a gamble, because there’s no guarantee rates will go lower. Refinancing is a smart choice when it makes sense for you, your situation, and your goals. Every day you wait for rates to drop further is another day you risk missing out on a great opportunity to save on interest payments.
2. It’s too much trouble
Refinancing should be an opportunity, not a burden. You likely have many of the documents needed, or can easily access those required, including proof of income (like W-2 forms), asset information (such as bank statements), and title insurance
3. Refinancing can be done at any time
While this may be true in some cases, it’s not for all. The housing market or your financial situation can change at any time.
4. There is no reason to refinance
There are many reasons to refinance. A lower mortgage rate may lower your monthly payment. If you choose a shorter-term mortgage, you’ll save money in interest paid over the life of the loan. For homeowners who have an adjustable rate mortgage, refinancing to a lower fixed-rate loan will provide payment certainty throughout the remaining years. Yet another reason many homeowners choose to refinance is to fund home repairs or other major purchases.
5. I can only refinance with my current lender
Giving you current lender an opportunity to provide you with a refinancing is a good idea, since it usually quicker and easier. However, it is also a good time to search and compare lenders, mortgage rates and fees.
6. I won’t qualify for a refinance
Many homeowners, in fact, do qualify for a refinance. Even if you haven’t built up a lot of equity in your home or are struggling with payments there may be programs that can assist you with refinancing. However, there are eligibility requirements, such as whether Fannie Mae or Freddie Mac own your loan, and your current loan-to-value ratio.
Keep in mind, to refinance, the number of years you’ve owned the home is less important than the amount of equity built up.
7. You must start over again
A refinance is a whole new loan. Thus, many homeowners do start over with a 30-year term in order to have the lowest monthly mortgage payment. You may also refinance to a shorter-term loan, such as a 20, 15, or 10-year mortgage to shave years off your repayment period.
Refinancing when mortgage rates are low is often a very positive financial decision. Saving money on interest payments on a monthly basis and over the life of the loan, and taking cash out for other expenditures are some of the most common reasons homeowners choose to refinance.
Learn more about our refinancing options, by visiting our website. You can even get an idea of what your refinance may look like with our refinance calculator.
Be sure to check out our articles to learn more about refinancing and mortgages.