6 Mortgage Refinance Myths-Busted!
Are you considering refinancing your mortgage amidst the current trend of falling interest rates? Perhaps you’re hesitant due to common misconceptions surrounding the process. While these myths may seem true, let’s debunk them one by one to help you make an informed decision with confidence.
But First, What is Mortgage Refinance?
Mortgage refinancing is a process where you replace your current mortgage loan with a new one. It is a way to modify your loan terms, like your interest rate or repayment period. By refinancing, you can aim to lower your monthly payments, pay off your loan faster, or access your home’s equity for other purposes like renovations or debt consolidation.
Myth #1: Past Rejection Means Permanent Denial
This is one of the common myths surrounding mortgage refinancing: past rejection means permanent denial. However, this belief doesn’t necessarily hold true. Just because you’ve been turned down for a refinance before doesn’t mean you’re locked out of the process forever. Circumstances change, and so does your financial situation. If you’ve made improvements in your credit score or increased your equity, you may now be in a better position to qualify for refinancing. Therefore, don’t let a previous denial discourage you from exploring your options anew.
Myth #2: Closing Costs are Expensive
Many people believe that refinancing comes with hefty closing costs, which can deter them from pursuing it further. While closing costs can indeed be significant, there are ways to manage them. Some lenders offer options where you can roll the closing costs into your new mortgage loan, spreading them out over time. Alternatively, you might opt for a slightly higher interest rate in exchange for a credit to offset these costs. By discussing these alternatives with your lender, you can find a solution that aligns with your financial goals without breaking the bank upfront.
Myth #3: A Minimum of 20% Equity is Mandatory.
It’s a common misconception that you need at least 20% equity in your home to be eligible for refinancing. While having less than 20% equity may require you to pay for mortgage insurance, it doesn’t disqualify you from refinancing altogether. The key is to carefully evaluate the financial implications. Even with mortgage insurance factored in, refinancing could still save you money in the long run. So, don’t let the 20% equity myth hold you back from exploring your refinancing options.
Myth #4: Refinancing Won’t Save That Much
Some people believe that refinancing won’t save them much money in the long run, leading them to overlook this option. But the truth is quite the opposite. Refinancing can result in substantial savings, particularly when there’s a significant decrease in interest rates. Even a slight reduction in your current interest rate can translate to tens of thousands of dollars saved over the life of your loan. To determine the potential savings, it’s advisable to check current interest rates and use refinance calculators available online.
Myth #5: Uniformity in Lender Rates
Contrary to popular belief, not all lenders offer the same rates for mortgage refinancing. In reality, different lenders may offer varying rates and terms. The financial experts at Mountain America Credit Union recommend you shop around and compare offers from multiple lenders. By doing so, you not only increase your chances of securing a lower interest rate but also gain the flexibility to choose terms that best suit your financial situation. Therefore, don’t settle for the first offer you receive. Explore your options to ensure you’re getting the most favorable deal possible.
Myth #6: You Need to Be an Expert to Understand the Process
Do you need to be an expert to understand the refinancing process? Many believe so, but that’s far from
reality. While some basic knowledge can be helpful, you don’t need to be an expert. Reach out to a financial advisor, ask questions, and get some knowledge before meeting the lender. Remember, the goal is to make informed decisions that align with your financial goals.
Conclusion
By dispelling these common misconceptions, you can approach mortgage refinancing with confidence. Understanding the process, exploring options, and seeking guidance can help you make informed decisions.
