Minneapolis, MN: Mortgage interest rates are great, and a lot of people are again running back to their lender to take advantage of these near historic interest rates.
Shopping for a home loan is confusing. Rates, closing costs, no cost loans, and more... But the less we know, the more we can expect to pay for it. There are plenty of crafty lenders who depend on your lack of knowledge. If you are thinking of refinancing, here are three major mistakes we see many homeowners make:
Mistake #1: Refinancing with your current mortgage company. It seems logical. They already know you pay on time, they already have your loan, so it will be quicker, faster, and cheaper.
Congratulations, you just got screwed!
Your current lender is almost always not the actual lender, but rather just who collects payments for Fannie Mae, Freddie Mac, etc. There are no special deals or offers, and they pretty much have to do everything all over to give you a new loan.
The know and understand you THINK they are a good place to use. The know you most likely will never contact anyone else... Because of this, they are almost NEVER the best choice.
Another area of concern is that they generally employ only low lever application clerks. You call asking about a loan, and that is what they give you. Rarely if ever do they actually do a complete review and analysis to see if there is a better loan available. For example, if you have an existing FHA loan, they may go straight to offering you an FHA streamline refinance. These are great loans, but your situation may be such that you can now get a better deal on a conventional loan. Sames goes with a VA loan, and a VA streamline refinance.
A much better move... Contact the local mortgage broker in your area to get the best deals.
Mistake #2: Getting greedy by holding out for an even better interest rate than you are currently being quoted is a game I see many people lose at because they set unrealistic goals. People tell me things similar to "I will only refinance if the rate gets to 3.50% with no costs". That would be awesome, but it isn't likely to ever happen. Sometimes I ask them why they are holding out for that? Why not hold out for 2.50%, or even 2.00%?? That get's them thinking.
A much better move is understanding that refinance rates are currently near the lowest they have ever been. If you are happy with what you are being quoted today. Take it, be happy, and never look back!
Mistake #3: Going backwards on your loan by refinancing back to a new 30-year loan. I just hung up with a nice lady who I help buy her first house some 10-years ago. She already refinance with me once, and now wants to do it again. That is great, and she can save some money monthly. But only a tiny bit of the savings is because of a lower interest rate. The bulk of her savings is because she is going right back to amortizing the payment over 30-years. So if she keeps this new loan, she would have ended up with 40-years of payments! Yikes.
A much better move would to to look at shortening the term of your loan. Instead of going back to a 30-year loan, look at some of the popular shorter terms, like a 15-year or 20-year loan. Many people are able to drop into a shorter loan with similar, or just slightly higher payments. Heck, we even offer oddball terms... If you have 22-year left, we can give you a 22-year loan. No problem!
If your property is in MN, WI, or SD - visit our web site to check current mortgage refinance rates, then use our online mortgage payment calculator to see what a shorter term loan would look like. If you are in another state, check with a local mortgage broker in your area.
You may be surprised, and you will probably have your home paid off before retirement, and saved untold thousands of dollars in interest! HOW COOL IS THAT??
Joe Metzler is a Senior Mortgage Loan Officer for Minnesota based Mortgages Unlimited. He was named the 2014 Minnesota Loan Officer of the Year, and provides Home Mortgage Loans in MN, WI, and SD. He can be reached at (651) 552-3681