Mortgage rates have been at an all time low for many years and while they’ve gone up a bit recently, they are still historically low. This has led to masses of homeowners scrambling to refinance their mortgages. Many homeowners have put off refinancing their mortgage because there are so many mortgage refinancing myths out there. That’s why we’re going to help you wade through the information and dispel those mortgage refinancing myths, which will then help you make an educated decision about whether or not refinancing your home is the right decision for you and your particular situation. Here are the top nine mortgage refinancing myths keeping so many homeowners from taking advantage of these historically low interest rates.
1. Do I Really Need To Have 20 Percent Home Equity Before I Can Refinance?
The short answer is, no you don’t. This myth came into play around the time the housing bubble burst. The fact is that lenders would prefer you have at least 20 percent equity in the house before you consider refinancing. However, there are plenty of lenders, including the Federal Housing Administration (FHA) and the Department of Veterans Affairs (VA), who will allow you to refinance regardless of the amount of equity you have in the home. You have probably heard of the Home Affordable Refinance Program (HARP), which was created by the Federal Housing Finance Agency for directly helping those homeowners who are current but underwater with their mortgages. That means these homeowners could be eligible for HARP refinancing, which could ultimately save them thousands of dollars by refinancing their mortgage at a lower rate, as well as other more favorable terms. Therefore, you have nothing to lose by trying.
2. What If I Don’t Have Enough Up Front Cash for the Closing Costs?
Many people think you have to have enough money on hand to pay for the closing costs when refinancing a home. However, that’s not always true. There are some lenders who will allow you to roll those costs into your loan, meaning you won’t need to have to put down any money up front.
3. Will My Monthly Mortgage Payment Go Down If I Refinance?
Well, that depends. If you refinance your mortgage at a lower rate, it will lower your monthly mortgage payment, unless you refinance for a longer term than you currently have on your existing mortgage. That means you should refinance for the same amount of time you currently have left on your loan or a shorter term, if possible.
4. What If I Have Been Turned Down in the Past?
The eligibility guidelines for HARP have changed. That means there are millions of people who weren’t eligible for refinancing before that could be eligible now. So don’t let your previous experiences stop you from trying again.
5. I’ve Heard That Now Is Not a Good Time to Refinance. Is That True?
It’s true that the housing bubble really did a number on people mentally when it comes to buying a home, and refinancing for that matter. However, mortgage refinancing could be extremely beneficial for many people and just because the mortgage crisis hasn’t completely recovered, it’s well on its way. That means if you wait too long to refinance, you could end up paying a much higher interest rate.
6. What Should I Do If I Don’t Know How to Go About the Refinancing Process?
This is one of the most common reasons people put off refinancing their home. While, yes, it can be a difficult and daunting process, the money you could save in the long run is well worth the time you will spend researching and learning how to do it. Additionally, there are plenty of resources available to guide you as to what you need to do and when. And if you need more incentive to take the plunge, here is something you should consider. If you refinanced your mortgage for a shorter term than what you currently have now, let’s say 11 years shorter for this example and that you would end up paying $100 more each month, which is doable if you assess your lifestyle and simply cut back in a few areas. This could conceivably save you $50,000 in interest fees over the life of your loan. Not to mention the 11 fewer years you would have to pay on it. And that’s no small potatoes!
7. Should I Use My Bank for Mortgage Refinancing?
You might be thinking that using your bank to refinance your mortgage is a good idea because they frequently waive their fees if you are one of their customers. And this is a good thought; however, that’s not the case when it comes to a mortgage. Most, if not all, banks do charge closing costs and other associated fees when it comes to refinancing a mortgage. Therefore, you shop around to find the best rates available.
8. How Will I Know Whether or Not I Should Refinance My Home?
There are plenty of reasons you should refinance your home, such as lowering your monthly payments, to avoid a balloon payment, to get rid of the private mortgage insurance (PMI) fee or to cash out some of your home’s equity. However, everyone’s financial situation is different and therefore impossible to give a solid answer as to how you will know whether or not you should refinance your home. Your best bet is to find a refinance calculator, plug-in your numbers and this will give you a general idea about whether or not refinancing is a good idea for your particular situation.
9. Wouldn’t It Be Better for Me to Invest My Money Rather Than Using It to Refinance My Mortgage?
Investing is all about making money, but so is refinancing your mortgage in a roundabout way. Smart investors don’t put all their eggs in one basket. That’s why refinancing your mortgage is a good idea. If you refinance your mortgage, you will have more money to invest. And if you are refinancing for a shorter term and a higher monthly payment, then you will be able to pay off your mortgage sooner. That means once your mortgage is paid off, you can take that money and invest the entire amount. Additionally, paying on a mortgage doesn’t come with any risk like investing in the stock market does.
Another way to look at it is by comparing how much money you would make if you had invested your money rather than using it to refinance your mortgage. Then compare that to what you would save if you had used your money for mortgage refinancing. Once you have those two numbers, you will also have a clear picture as to which route is best for you. Of course, this is not an exact science, because there’s no way you can predict how much you will make if you invest your money. However, you can use your best guess based on the current market and hope for the best.
2 Point Highlight
1. Â Mortgage rates have been at an all time low for many years and while they’ve gone up a bit recently, they are still historically low.
2. Â Here are the top nine mortgage refinancing myths keeping so many homeowners from taking advantage of these historically low interest rates.
