This is a guest post by Chris Mack. Chris Mack is a professional mortgage loans consultant and is working in a well reputed mortgage company, providing their services for on Mortgage loan calculator, Mortgage Payment calculator and Refinance Mortgage Calculator.
With mortgage interest rates as low as they are right now, homeowners can save a lot of money by refinancing their home loan. Here are 5 top mistakes that homeowners frequently make when refinancing a home mortgage:
1 - Not shopping around
It's amazing how many borrowers simply find a lender offering what appears to be a good rate, either in the newspaper or online, contacts them and applies for a loan without checking out the competition. Shaving one-eighth or one-quarter of a percent off your interest rate can save tens of thousands of dollars over the life of a typical loan.
2- Focusing only on the interest rate
Although the interest rate is the primary factor in determining what your mortgage will eventually cost you, it's far from the only one. Closing fees vary widely from lender to lender, and a seemingly low rate is sometimes used as a come-on to a loan with abnormally high fees.
3 - Failing to calculate the break-even point
The break-even point is the date when the money you've saved by refinancing your mortgage equals what it cost you to refinance. For example, if it cost $7,000 in application and closing costs to refinance your mortgage, and you saved $200 a month by refinancing, your break-even point is after 50 months. If you sell the home or refinance before then, it wasn't worth your while to refinance - in fact, it will end up costing you money, in addition to the time you spent refinancing.
4 - Not getting a big enough rate reduction
This is related to above point. If you only get a small reduction in your interest rate, say half a percentage point, it's going to take you a long time to reach the break-even point where your interest savings exceed your closing costs. Most experts say you need to knock at least three-quarters or a full percent off your current rate to make refinancing worthwhile. High-end homes can justify a smaller rate reduction than more modestly priced ones, because the resulting savings are much greater.
5 - Trying to time interest rates
Particularly at a time like right now, when mortgage interest rates are unusually low, borrowers may carefully watch daily changes in interest rates, trying to identify trends so they can jump in at the spot where rates are at their absolute lowest. But they may end up missing the boat entirely and see rates go shooting back up again. Timing mortgage interest rate is like trying to time the stock market - it's very difficult even for savvy professionals. Look at it this way - rates are already more than one or two percentage points lower than they have been for most of the past decade - getting greedy over fractions of a percent could translate to a lost opportunity.
With mortgage interest rates as low as they are right now, homeowners can save a lot of money by refinancing their home loan. Here are 5 top mistakes that homeowners frequently make when refinancing a home mortgage:
1 - Not shopping around
It's amazing how many borrowers simply find a lender offering what appears to be a good rate, either in the newspaper or online, contacts them and applies for a loan without checking out the competition. Shaving one-eighth or one-quarter of a percent off your interest rate can save tens of thousands of dollars over the life of a typical loan.
2- Focusing only on the interest rate
Although the interest rate is the primary factor in determining what your mortgage will eventually cost you, it's far from the only one. Closing fees vary widely from lender to lender, and a seemingly low rate is sometimes used as a come-on to a loan with abnormally high fees.
3 - Failing to calculate the break-even point
The break-even point is the date when the money you've saved by refinancing your mortgage equals what it cost you to refinance. For example, if it cost $7,000 in application and closing costs to refinance your mortgage, and you saved $200 a month by refinancing, your break-even point is after 50 months. If you sell the home or refinance before then, it wasn't worth your while to refinance - in fact, it will end up costing you money, in addition to the time you spent refinancing.
4 - Not getting a big enough rate reduction
This is related to above point. If you only get a small reduction in your interest rate, say half a percentage point, it's going to take you a long time to reach the break-even point where your interest savings exceed your closing costs. Most experts say you need to knock at least three-quarters or a full percent off your current rate to make refinancing worthwhile. High-end homes can justify a smaller rate reduction than more modestly priced ones, because the resulting savings are much greater.
5 - Trying to time interest rates
Particularly at a time like right now, when mortgage interest rates are unusually low, borrowers may carefully watch daily changes in interest rates, trying to identify trends so they can jump in at the spot where rates are at their absolute lowest. But they may end up missing the boat entirely and see rates go shooting back up again. Timing mortgage interest rate is like trying to time the stock market - it's very difficult even for savvy professionals. Look at it this way - rates are already more than one or two percentage points lower than they have been for most of the past decade - getting greedy over fractions of a percent could translate to a lost opportunity.
