Refinancing your mortgage is a GREAT way to lower your mortgage payment and help put money back in your pocket. Just be careful that you don’t make mistakes which will cost you in the end, and will make you pay more in the short or long run. Here are some things to watch out for when refinancing:
1.) Shop around for the best rate – Make sure you don’t just rely on your first choice, but check with many other banks in the area to see who can give you the best rate. I have seen up to a %1 difference in rate from 1 bank to the next which could mean an even lower monthly mortgage payment for you.
2.) Points added -When dealing with brokers and banks make sure that they are not making you pay points for getting you a lower rate. They will do this to make the interest rate lower and make the refinance seem more appealing, but you will have to pay money up front which is not good in the short term. Some brokers will even slip it in there if you are not careful. Points can be good if you have the mortgage for the long-term, so it really depends on your mortgage needs.
3.) Closing Costs – Closing costs should cost you anywhere from $800 – $1500 (closer to $1500). Some places online and some banks will give you an exceptional rate but in the end they will try to charge you up to $4000 – $5000 in closing costs. Just try to pay attention that they don’t slip these hidden fees under your nose (especially those online sites).
4.) Type of mortgage – Make sure you are aware of what type of mortgage you are signing up for. Some mortgages including ARMS (adjustable rate mortgages) will give you a lower rate in the short term, but could jump after the initial years are up. This will make your monthly mortgage payment jump.
5.) Broker fees -If you use a mortgage broker remember that they may charge you anywhere from $1000 – $2000 in broker fees when you could have just called the bank and refinanced it yourself.
6.) “Just tie it in” – That’s my favorite line! “We will just tie it in!”. That’s and easy way for banks and brokers to get you to pay hefty fees. They will try to tie in all of the fees into your mortgage so that you don’t have to write a check that day, but in the end you will end up having to pay all of them it off with interest when you could have avoided them in the beginning.
7.) PMI or no PMI- If you are close to having %20 down on your mortgage, make sure you avoid the PMI (private mortgage insurance ) as much as possible. You can save yourself hundreds of dollars a month just by avoiding the PMI payment. You can also look into and 80/20 mortgage if the bank has it available.