7 mistakes people make when refinancing a home or car
6. Additional expenses
Refinancing is not free. You should expect to pay between 3% and 6% of your outstanding principal when refinancing, depending on the Federal Reserve. These costs include loan application, loan origination, appraisal and inspection fees, as well as attorney, title search, and mortgage point fees to lower your interest rate. Some mortgages and auto loans also come with a prepayment penalty, which means you’ll pay fees if you pay off the debt early.
Before refinancing, consider how long it will take you to finish after paying additional fees. Suppose your new mortgage will save you $ 150 per month, but you have to spend $ 3,000 on closing costs and fees. It will take 20 months for your new loan to actually start saving you money.
7. Assuming “no-fee” refinancing is preferable
If your lender offers you “no-cost” refinancing, make sure you understand the terms. No-fee likely means that the lender is bundling the various fees into your principal or charging you a higher interest rate in exchange for not requiring you to pay cash to cover closing costs. Unless you don’t have the cash to cover the closing costs, or you only plan to live in your home for a few years, traditional refinancing is probably a better option. according to Bankrate.