3 Common Refinancing Myths That Could Be Costing You Money
Written by Jason Nelson on October 19, 2017
Under the right circumstances, a mortgage refinance can be a wise financial move. However, many homeowners remain reticent when it comes to refinancing, and that’s mostly because of all the myths and misinformation out there surrounding this topic.
To help borrowers take full advantage of what might be the last opportunity to refinance—at least for a while—and save some money, here are the top three most popular refinancing myths that could end up costing a hesitant homeowner money in the long run.
Myth #1: It can be costly to refinance.
In general, refinancing a mortgage involves most of the same closing costs as the original loan. However, picking the right mortgage broker and refinancing option can result in significantly lower monthly payments, which can save a borrower a lot of money over the life of the new mortgage.
If a homeowner spends $2,000 in closing costs and saves $50 a month, for instance, the breakeven point is 40 months. This means that he or she will be able to save $50 a month after 40 months, over the rest of the new loan term. As an example, on a 15-year fixed-rate mortgage refinance, the savings can add up to roughly $7,000. To make an informed decision, a homeowner should also factor in any prepayment penalties. If you wish to find out how much money you can save by refinancing your mortgage, please feel free to use our handy mortgage calculator.
Myth #2: Refinancing a mortgage can be a long, daunting process.
As experienced mortgage brokers, we know that just the thought of gathering all the paperwork necessary to qualify for a mortgage refinance can put a borrower off. However, comparing the terms and conditions of an existing mortgage with those associated with a refinance, and implicitly finding out if refinancing makes financial sense, will only take a few minutes.
While it’s true that most conventional mortgage refinances require borrowers to go through the income verification process and home appraisal, the fact that refinancing could save thousands of dollars in interest and years of mortgage debt repayment justifies the effort.
Myth #3: It’s too early or too late to refinance.
The 20% home equity “rule” for refinancing is just another myth. Although most mortgage brokers prefer borrowers who have at least 20% equity built in their homes, it’s possible to refinance below that threshold. Some factors that govern a refinance include the existing mortgage, income, credit score and the refinancing option a borrower qualifies for.
With the recent increase in interest rates, some borrowers might also think that it’s too late to refinance their mortgages. But according to financial advisors, it’s still a good time to refinance, particularly if we consider that the interest rates are predicted to rise above 5% by the end of 2018. In fact, anytime can be the right time to refinance, as long as doing so delivers the expected benefits.
Nowadays, mortgage brokers make available a variety of refinancing options, but the myths around them may deter eligible borrowers from taking advantage of this opportunity. The borrowers who refinanced their mortgages with loan products recommended by proficient mortgage brokers have been able to save big bucks, demonstrating once again that refinancing can be well worth the effort. For this reason, we advise homeowners to embrace the facts about mortgage refinances, not the myths. To find out more about the mortgage programs or refinancing options available to you, please get in touch with our experienced and reputable North Florida Mortgages brokers.