7 common misconceptions of refinancing a mortgage: Are you thinking of refinancing your mortgage?
Times change, and so will your mortgage needs. But finding the right mortgage support requires knowing how the process works. There are a lot of misconceptions surrounding refinancing.
Don’t worry, we’re here to help! Read on as we explain 7 misconceptions around refinancing a mortgage.
1. One Mortgage Quote is Enough
When it comes to borrowing, one quote is never enough. Especially if you plan on getting a quote from your bank. Most people think that all the quotes will be the same. After all, the mortgage providers always ask the same questions, right? But they couldn’t be more wrong. Different providers can offer very different rates and getting more than one mortgage offer could save you a lot of money.
You also want to look for a good service, don’t get stuck comparing rates. Working with an experienced mortgage broker can make the process of shopping for a mortgage .
A good mortgage broker will have access to multiple lenders, including the major banks and will negotiate on your behalf. This gives you a lot more leverage than if you were to just walk into your bank yourself.
Most people don’t realize how much power having multiple offers can give them.
2. It’s Not Worth Refinancing for A Small Rate Reduction
It’s natural to want to avoid the hassle of refinancing. No matter how easy it is, there are still questions to answer and paperwork to fill out. So, it’s common to hear people talking about how a small rate reduction isn’t worth it. But with a mortgage, a little can go a long way.
Even a moderate saving will add up over time. Saving $50 each month may not sound like much now, but over the course of a 30-year mortgage that is $18,000. Now that is easily worth a little bit of paperwork.
3. Appraisals Aren’t Important
Arranging to have your home appraised again can seem like a waste of time. Many people will attempt to avoid being appraised again, especially if property prices in the area haven’t increased very much. But this could mean they are underrepresenting their property.
Appraisals are the main driver of your interest rate. This is because they set the value of your property, and your loan to value ratio. The higher your loan-to-value ratio the worse your rates will be. To secure a loan with a loan-to-value ratio above 80% you will need to take out mortgage loan insurance. This allows you to go up to 95% but will come at additional cost.
It’s important to choose a lender who uses local appraisers. This will give you the most accurate results. Every appraisal can be subjective though. The best thing to do is fix up those odd jobs and tidy your home up. You don’t want them to think you have maintenance issues you’ve neglected.
4. You Can Take Out as Much Cash as You Want
One of the reasons people refinance their home is to free up equity. This is called a home equity loan or cash-out refinance, and involves you taking out a new mortgage on your property, and pocketing some of the value you have already paid off. This is particularly attractive if the value of your home has increased since you purchased it.
But you can’t take as much cash as you want, there are rules to follow. You can take up to 80% of the value of your home using a cash-out refinance. So, if your home is worth $400,000 the maximum you could cash-out is your equity value minus $80,000.
5. Keeping Current on Your Payments Qualifies You For a New Loan
This is a common misconception. A lot of people think because they pay their mortgage on time, their application will be easier. Or, they might believe it’ll be easier because their income is higher than when they took out the mortgage.
Your mortgage and payment history aren’t going to be relevant here. When applying, you need to qualify under the current guidelines for income and credit score.
6. You Won’t Improve Your Score Before Rates Rise
Sometimes, people see great mortgage rates on the market, but don’t look into them because of poor credit. Don’t get us wrong, a long history or overused credit cards and missed payments can’t be undone overnight. Most lenders can do what’s called a “rapid rescore”. This will correct any entries that have a temporary effect on bringing your score down.
For example, say you have a company credit card entry on your report. If your boss pays it off, it could boost your score immediately. Look into the little things, consider consolidation and getting on top of your debt, and talk with your lender.
7. You Can’t Be Approved if You Have Been Denied Before
If you have been denied for refinancing before, that doesn’t mean that you won’t ever be eligible.
There are two main requirements for refinancing, equity and credit. As prices rise and you pay down your mortgage, you will likely be gaining equity. So unless your house has dropped in value, you will almost always be more attractive for refinancing as time goes by.
If you have been refused for bad credit then that isn’t a dealbreaker either. There are special bad credit mortgage options available, or your credit may have improved if you have been actively working on it.
Refinancing a Mortgage Doesn’t Need to be Confusing
While we have clearly outlined 7 common misconceptions of refinancing a mortgage, there are many more and understanding them all is difficult. Although it takes a bit of work, it is always worth investigating whether refinancing will save you money or allow you to free up equity. Remember, even a small change to your premiums will have a big impact over the length of your mortgage.
If you are considering refinancing your mortgage, call us for a no obligation consult at 1-877-383-1577 or simply apply online today with the Mortgage Brokers Network. We understand that applying for refinancing can be overwhelming, which is why our team of mortgage broker experts will work with you to find the best rate!