With mortgage rates being at new record lows and the threat of Coronavirus, homeowners are rushing to refinance their mortgages. However, it is important to look before you leap. There are details that are easy to overlook when faced with a good deal.
So, before you take that big step to refinancing, here are some mistakes you should be aware of.
Mistake #1
Just because a federal interest rate may be nearly 0%, does not mean you can get a 0% mortgage rate. Federal rates, prime rates, and the rate a lender will offer you are not all the same.
The federal funds rate is the rate banks pay to borrow from each other. So, technically speaking, they do not have a direct effect on mortgage rates.
Always keep in mind that the better your credit score and debt-to-income ratio, the lower your rate will be.
Mistake #2
With the rush of people refinancing, lenders have become overwhelmed with refi applications. In addition to this, many homeowners have been checking in with their lenders for advice during this uncertain time.
Due to this surge in business for lenders, there is a possibility that, if you wait any longer, you may risk lenders possibly spiking their rates to slow things down a bit.
Mistake #3
Do not forget about refinancing fees and closing costs! Check with your lender on how much will be going into these costs, and if they outweigh what your original rate was. Depending on the situation, you may not be saving as much as you think in the long run.
Mistake #4
There are other agendas to refinance, including tapping into your home equity. But beware – in times like these, it is easier than you think to refinance too much equity.
If you tap into too much equity, you could risk not being able to afford your mortgage payments if an economic downturn were to fall upon us.
Mistake #5
Finally, a big mistake that you can make when refinancing is always trying to find the best rate. It is easy to be sent down the rabbit hole of online searches, and when you find one good rate, there will always be that voice in the back of your head saying there could be an even better one out there.
However, if you search for too long, you could risk losing out on a good deal. Just as times are uncertain right now, rates can be as well. So, if your gut is telling you to hop on an opportunity, you should probably listen to it.
