Interest rates on home finance have sunk to an all-time low since the great economic crash in 2008 and have stayed that way ever since.
Homeowners may be wondering, “Is it a good time to go for a mortgage refinance since the rates are so low?” But before you dip into that pool, check out these 5 myths surrounding home mortgage refinances and how you can avoid making a crucial mistake that could cost you more in the long run:
1. Home Loan Refinance Is Not A Good Idea
Home refinances aren’t always the best solution for homeowners, but what these new mortgages can do is offer a reduced monthly payment than what you’re paying now. The idea behind this myth is that you may think that you’re actually paying more because of the upfront costs such as home appraisals, obtaining current credit reports, mortgage broker fees and the title insurance, but that isn’t the case.
2. Shopping Isn’t Smart Because The Rates Are Already Fixed
There’s a truth behind the fixed interest rates that are set by the Federal Reserve Bank, but this doesn’t mean that all refinance mortgages are fixed as well. There are still some factors that could give you a lower deal. For example, fees associated with mortgages can vary from one to another, and sometimes these fees are added to the interest rate. Loan points are also handed out differently, as are closing costs. It’s always a good idea to shop around for different refinance deals before settling in with the best one.
3. You’ll Need A Significant Amount Of Cash On Hand
This myth has a grain of truth in it rather than being a complete myth. You’ll certainly need to have some cash on hand for upfront fees such as appraisals, application fees, closing costs and the title insurance. As long as you show enough equity to the lender, you won’t need to cover out of pocket costs because you’ll be considered as a good risk. Keep in mind that it varies from one lending company to another; if you don’t have the cash on hand to cover the initial expenses, the agent may incorporate the initial costs to the refinance loan.
4. You’ll Need 20% Home Equity To Be Eligible For A Mortgage Refinance
The 20% home equity isn’t necessarily a requirement, but it’s true that all lenders would like to have homeowners with 20% home equity as a minimum. HARP, or the Home Affordable Refinance Program has made it possible for you to get a refinance even if you have a lower home equity. In fact, the newer version of HARP now allows homeowners to get a refinance with zero home equity.
5. You Won’t Be Qualified If You Were Turned Down Before.
The changes in the HARP program has made it possible for all homeowners to get a refinance deal on their current mortgages. The HARP update from v1.0 to v2.0 in 2011 allowed homeowners to get an unlimited loan-to-value refinances, which means those who weren’t qualified before can get one now. Interested in getting a refinance? The door is now open for you.
New loans usually include a “honeymoon” period where you pay a lower interest rate before it reverts to the normal rate. Though at first glance you’ll be tempted to think that the newer fixed rate is lower than the current one, this doesn’t mean that you’ll be paying less. Financial experts recommend home refinance rates that are about 1.5 to 2 percent lower than what they are paying right now in order for the refinancing to be beneficial. Keep in mind that you won’t be able to get the lower interest rates being offered to those who have good credit if you have sub-par credit.
Refinancing may not be the best option if you’re not planning to stay for a long time because the lower interest rates offset the upfront costs and only pay for themselves after a good deal of time has passed. Before opting for a refinance, take a look at the bigger picture and see if it’s ideal in your situation.
There are many more myths surrounding mortgage refinancing. Make sure to do your homework, ask the experts and check out online resources before joining the crowd and taking advantage of the lowest mortgage rates ever.