Not sure what’s fact and what’s fiction? We’re here to bust some of the most common refinancing myths so you can start saving some serious dough. By now you’ve probably heard: refinancing your mortgage has the potential to save you thousands, especially if you refinance when rates are low.
Unfortunately, many homeowners are hesitant because they are intimated by all the misconceptions about refinancing. But that could be a lot of money wasted if you keep waiting! Luckily, we can help you determine fact from fiction so you can start saving some cash! Keep reading to learn more and click this link to read the full article.
Myth No. 1: You’re too late
We’ve been hearing a lot about how the Fed is raising interest rates, which might make you wonder if you’ve missed your chance to refinance.
Myth busted: Don’t worry, says Ray Rodriguez, regional mortgage sales manager at TD Bank in New York City.
“Even with the recent Fed rate hike, it’s still a favorable environment, and refinancing can be a great move,” he says—just as long as you’re clear on the one-time costs associated with the refinance, and confirm that the transaction will lower your monthly payments.
What you’re looking for is the break-even point of the loan, which is your total closing costs divided by the monthly savings. So if you’re spending $3,000 in closing costs to save $100 a month in your mortgage payment, the break-even point will be 30 months—or just under three years. If you think you’ll be moving before then, you might not want to refinance. But if you’re staying put, then you’ll start saving money after the 30 months are over and for the life of the loan.
You can see for yourself using our handy refinance calculator.
Myth No. 2: You won’t be able to qualify
If you got burned in the housing meltdown (or even if you didn’t), you might be wary of approaching your lender for a refinance. After all, a lot of lenders pulled out of the market entirely, and the ones that stayed took an “extremely conservative approach” toward mortgage and refinancing guidelines, says Jill Moore, senior mortgage originator at Everbank in Jacksonville, FL.
Myth busted: Even if you’re still struggling to get your credit back on track, you might qualify.
The guidelines “are starting to loosen up again,” Moore says. “People who couldn’t refinance due to credit issues—or maybe they lost their job or they started a new job—are now able to refinance.”
Myth No. 3: You’ll have to reset the clock to 30 years
Maybe you’re feeling good because you’ve already paid off 10 years of your existing loan, and the thought of restarting and moving the finish line back to 30 years sounds, well, long and daunting.
Myth busted: The right refinance product for you depends on your time frame and future plans; it might well not be a plain-vanilla 30-year loan, says Chuck Price, vice president of lending for New England Federal Credit Union, in Westbury, NY.
One great option if you’re relatively certain you won’t be staying in the home forever is an adjustable-rate mortgage, which usually offers initial rates that are lower than a conventional fixed-rate loan. You’ll pay that lower amount for your choice of three, five, or seven years—however long you reasonably expect to be in the house—and ideally you’ll be ready to sell when the rate readjusts to the higher amount.
All that money you saved with your smaller payment can then be devoted to other financial needs, Price says.
Price urges caution, though: You should fully understand the initial, annual, and total rates associated with your mortgage product and its time frame, as well as a worst-case scenario of how high your payment could go if you don’t sell the house as planned. Make sure you ask as many questions as you need of your mortgage broker to ensure you have the right loan for you.