Mortgage rates at record lows are encouraging more people to finally take the plunge and buy their first home. According to Freddie Mac, a 30-year fixed mortgage now has an average interest rate of 3.62 percent. A decrease of 0.39 percent from last year.
New homebuyers aren’t the only ones jumping up the chance at easy mortgages. Borrowers who are years into their current FHA loans are also looking to refinance them. After putting down a fair amount in installments and with today’s rates, applying for an FHA Streamline Refinance Loan has never been more attractive.
But in the midst of all this excitement, one also becomes more susceptible to oversight.
Whether you’re searching for that perfect home or wanting to own one for the first time, read on. Know what the common pitfalls are so you can avoid them.
Reaching new levels of indebtedness
A lender will always look into your credit when assessing your application for a refinance. Making major purchases or applying for new credit could mean delays, or worse rejection. A new credit account also has a negative effect on your credit score. With a low score, you’re likely to end up with higher interest rates.
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Refinancing with your current lender without rate shopping
Refinancing with your current lender is convenient. It’s easy. However, it won’t guarantee that you’ll be getting the best/lowest rates possible. Never assume your lender will give you a special deal. Shop around and see what other financial institutions in your area have to offer. It could mean extra effort and a lot of legwork, but those are nothing compared to having your monthly mortgage reduced by more than 1 percent.
Not considering all possible costs
Yes, getting a lower monthly payment is the goal. Still, you should know that there are other factors that help create the overall picture, where mortgage expenses are concerned. Here are some tips you might find useful.
- Check your mortgage agreement to make sure you don’t incur penalties for choosing to pay your loan off early.
- Consider the amount of time left on your current mortgage. Factor the closing costs for a refinance into that. If you’re close to paying it off, then refinancing may not be the most sensible thing to do.
- Run the numbers for the different fees. Assume a variety of scenarios by changing the loan amount. You may just find that it would still be more expensive to get a refi, even with those lower monthly rates.