The world is always trying to take your money and assets away. The world is always trying to take your house away. If you act stupidly, it is easy to lose everything. And these rules apply to the mortgage refinance as well.
With mortgage interest rates near record lows, it seems that everybody who refinances their mortgage is in a better place financially, but this is not always true. Stupid people often screw things up for themselves and their families.
The main reason for refinancing a mortgage is to get dramatically lower interest rates but if the fees you’ll be paying exceed the benefits of the lower interest rates, then you should not refinance. Perhaps you have a substantial prepayment penalty on your mortgage? Perhaps you’ve been lured into a variable rate mortgage that could go up dramatically?
Predatory mortgage lenders often ask the borrower to sign incomplete or blank documents, or exaggerate their income. Not only is this dishonest, it is done to structure the mortgage loan as to promote default. The borrower qualifies for a larger property than they can afford, and when they are unable to make the payments the lender forecloses and takes the home. It is important for the borrower to do the necessary research on mortgage offers in order to help them to recognize dishonest mortgage lenders.
Get Closing Costs Up Front
Until the details of the specific mortgage loan are clear, closing costs are estimated. Because there are different ways to calculate closing cost, it is always best to expect the worst and be happy later. By law, the closing costs have to be disclosed to the borrower within 3 days of making the loan application. The lender should make the disclosure in a timely fashion and be as upfront as possible.
Understand the Reasons for Refinancing
Homeowners often have different reasons for refinancing. Some simply seek to reduce their rate of interest. However, that may not always be to their advantage, as the related fees may end up being more that the gains from the rate reduction. In order to make the best decision, it is important to have an understanding of their reasons. It could be for consolidation of debt, home improvement, or for a major purchase. It could also be for other personal or financial reasons, perhaps taking a loan for cash to purchase a car. Some purchases may be used for deductions on interest payments on the tax return. It is always wise to consult a tax attorney, accountant or financial planner prior to making those decisions.