4 minute read

Is it a Good Time to Refinance Your Home? [5 Mistakes to Avoid]

Is it a Good Time to Refinance Your Home? [5 Mistakes to Avoid]

Is it a Good Time to Refinance Your Home? [5 Mistakes to Avoid]

Home refinancing is a hot topic right now with rates as low as they've been in 50 years. But experts say it won't last forever.

Refinancing your home can give you a ton of benefits - saving in interest, dropping mortgage insurance, and shortening or extending your term, to name a few. But take a look at the top 5 mistakes people make before you decide to refinance.

1. Not Maximizing Your Credit Score


Believe it or not, the difference between a single credit score point over the life of a mortgage can add up to as much as $1,000 for every $100,000 you borrow. That may not seem significant until you do the math on 10 or 20 points. Now we’re talking a new deck, car or tropical vacation. Putting improved credit scores in that perspective, it’s clearly worth taking some time and making an effort to improve your scores as much as possible before refinancing.

It’s not uncommon for people to have errors on their credit reports. A bill that got paid and didn’t come off your report or incorrect reporting from government agencies can negatively impact your rating. This is considered an error on your report, and shockingly -  upwards of 20 percent of all credit reports have faulty information. Five percent end up paying higher rates than they should be.

Knowing the answer to "Is it a good time to refinance?" could be as simple as knowing your credit score and whether a little more time would optimize it for a better rate. 

2. Under-Estimating Property Values

Data from resources such as Fannie Mae indicate that a significant number of homeowners do not understand the full growth of their property’s value since the subprime mortgage crisis and financial collapse. Lenders generally prefer homeowners to enjoy 20 percent or more in equity when you do a mortgage refi, and you may have more than you think.

According to resources such as the U.S. Bureau of Labor Statistics, home values have substantially rebounded. The average uptick in home value from 2000 to 2019 stands at more than $55,000. That figure may be a lot higher than many homeowners anticipate when considering whether to refinance. You can always consult sites like zillow.com to see the "Zestimate" for your current home. These have margins of error, of course, but if it's been a while since you valuated your dwelling, it can't hurt to take a look! Especially if your original mortgage required private mortgage insurance (FHA loans or conventional loans if you had less than 20% down payment.)

Knowing the actual value of your home allows you to make informed decisions. Find out what your home is worth before deciding it's a good time to refinance. You may even find you decide to sell and buy a different home if your equity position is really good. If so, you'll want to read our Are You Buying a House in Arizona? Here's Your Ultimate Guide eBook.


3. Not Shopping Around When You Refinance Your Home

Reconnecting with your existing lender and moving forward may seem like an efficient way to refinance your home. After all, the lender may already have much of the pertinent information needed for the transaction, and you’ve already done business with them in the past. However, the real estate and mortgage underwriting climate has dramatically changed in recent years. It doesn't hurt to get multiple preapprovals.

Today’s mortgage applications are often submitted electronically, and rates can differ considerably as upstart and traditional lenders compete. It is also no secret that changes in regulations have allowed banks and other mortgage outfits to write more loans. As someone who already owns a home, you enjoy a unique negotiating position.

Consider for a moment that the difference between a $250,000, 30-year fixed, 4.25-percent mortgage and one at 4.0 percent can save you upwards of $13,000 in interest payouts. Remember, you are an established homeowner. It’s time for financial institutions to make you their best offer. Shop around! And when you find the right fit, that will help you decide if it's a good time to refinance. 

Just make sure to do all hard inquiries (preapproval applications) within a 30-day period, so that your credit score doesn't take a hit. 


4. Not Preparing For Closing Costs 


There seem to be two common errors that people make regarding costs and fees when refinancing. The first issue is that too many people forget to calculate closing costs into the financial equation. Although you can save a substantial amount of money when you refinance your home, closing costs are often forgotten.

In some cases, homeowners roll those costs into the new mortgage, and that can make it feel like there is no upfront expense. However, you pay interest on closing costs and fees under this scenario. If you are in a position to pay out-of-pocket, you can gain considerable savings over the life of the loan. Some lenders require you to pay for closing costs out-of-pocket. Arizona averages costs right now for a refinance hover around $2,500-$3,000. 


5. Waiting for Lower Interest Rates


If you are in a position to refinance a house and save money, today’s lending landscape is what matters. Focus more on having a solid budget and spending plan, verify you can get at least 1% APR lower than what you're currently paying, and chat with a mortgage specialist to make sure a refi is a good fit for you. These factors, when put together, will help you answer the question "Is it a good time to refinance?" instead of relying on one factor alone.

Mortgage rates are a little bit like the stock market - hard to predict. Waiting could either make the rates go up or go down. That’s why it’s essential to remain grounded in the business realities that exist right now. If it makes sense for your personal finances and you can take advantage of current mortgage rates, pull the trigger and take the win!


How to buy a house in Arizona



This article is intended to be a general resource only and is not intended to be nor does it constitute legal advice. Any recommendations are based on opinion only.

Rates, terms and conditions are subject to change and may vary based on creditworthiness, qualifications, and collateral conditions. All loans subject to approval.

Is it a Good Time to Refinance Your Home? [5 Mistakes to Avoid]
How To Buy A Car: 3 Simple Steps To A Competitive Car Loan
2021 Federal Stimulus Payment Information