Mortgage refinancing has several great benefits if used properly. But, not considering important factors could be costly and endanger your home. Here are 5 costly mortgage refinancing mistakes you must avoid.

Oversight #1: Failure to lock in your rate

Rates are incredibly erratic. It can change even as your loan is being processed. So if you did not lock your home mortgage interest rate in, you might be offered a higher rate than what you’ve anticipated. Request your lender to lock in the rate you are happy with; get it in writing and verify it when the finalizing of your loan is done. Take note: your lender is unlikely to lock in your mortgage interest rate unless you request it.

Blunder #2: Failure to get several quotes

There are hundreds of mortgage providers out there. Each lender will provide a loan, but they are unique from one another. This is the reason you have to get more than one quote to obtain the best rates. You may think that one mortgage company is just like any other, but you should shop around for mortgages just like you would for a car. Compare different companies and look for differences. Ask what the criteria are to get the best mortgage rate. Find the company that gives you the best rate and bypass the other companies.

Oversight #3: Refinancing too often

Refinancing can be an advantageous way to lower your interest rate and save on your monthly mortgage payments. But, don’t try this every time interest rates fall. You need to understand how the fees to terminate a loan early and originate a new loan figure in to your long term savings from the lower rate. Fees you pay may offset your savings over the remainder of you loan, especially if you sell you home in a few years.

Mistake #4: Not computing your break-even point

The price you pay for your new loan is often overlooked by home owners looking for lower monthly payments.

Computing your break even point is simple. For example, your monthly savings for refinancing your mortgage is $200 and your closing cost is $2000. You can quickly divide the fees you paid by your monthly savings ($2000 / $200 ) to find the break even point. In this example, it will take you 10 months to recover the cost of refinancing. To say it differently, during the first 10 months you have not seen any savings at all. This is closely related to the mistake we covered before..

You may already have refinanced your current loan. If so, have you reached the break even point? If not, you need to extend your calculated break even point to take your previous refinance into consideration. What determining your break even point does is to tell you how long you have to stay in your home before you see any real savings.

Blooper #5: Refinancing without a plan

Some people think that every time the interest rates drop that it’s time to refinance. You should understand that this is wrong. There are other conditions to determine if it is the right time to refinance your home and not just by looking that the prevailing rate.

To make a wise refinancing decision, consider some of the following ideas. Wait to refinance …

… unless you plan to stay at your home for a year or two or after you reach the break-even point
… if you do not have a history of paying on your current loan for a couple of years
… if you have only a few years left to pay for your home.
… if you have a bad credit score mull over credit repair first
… if your home is losing value
… if you have already used up all the equity of your home

Avoid these blunders and you can make refinancing your mortgage a happy experience.

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