With the interest rate on a 30-year fixed-rate mortgage down to 4.09%, hitting a yet another record low, according to Freddie Mac, it's surely a great time to refinance.
But before you go running off to your lender to catch the best rates since 1951, settle down and get yourself straight. According to the LendingTree Marketplace Survey, many people are making major mistakes in the refinancing process that can be quite costly.
LendingTree surveyed its network of lenders and asked what are the biggest mistakes they see folks making when refinancing their home loan. These were the top five mistakes the survey revealed:
1. Over-estimating the value of the home: With home values dropping in today's market, borrowers typically over-value their home, causing borrowers to receive higher-than-expected loan offers.
2. Hesitating to lock in low rates: Lenders are seeing borrowers waiting for rates to drop further, missing out on the opportunity to lock-in with the current low rates.
3. Focusing only on interest rates: Borrowers are focused only on rates when they should also factor in lender fees, loan terms and lender reputations into their ultimate decision.
4. Overlooking shorter-term loans: Many borrowers are refinancing into a 30-year fixed mortgage instead of considering other options such as a 20-year or 15-year fixed rate, which would shorten the life of the loan and significantly reduce the amount paid to interest.
5. Consumers are uncertain of what documents are required to refinance: Borrowers who haven't refinanced in recent years sometimes fail to have the required document going into refinancing which delays the closing process.
But what dumbfounded Mona Marimow, senior vice president at LendingTree, was that one out of three people didn't even know their current mortgage rate.
"This is the biggest financial investment most consumers make in their lifetime and its imperative that they know this number, particularly once they actually begin the refinance process -- given rates are at rock-bottom lows, there are eligible consumers who could be completely missing out on saving hundreds of dollars a month, or thousands per year," says Marimow.
Secondly, she says, many people who go into the refinancing process are completely unaware of the value of their home and the impact that will have when they try to refinance.
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Lack of preparation costs time and money. The down side of historically low interest rates is that lenders are overwhelmed with by the volume of people seeking to refinance right now, she points out. "Some are even raising their rates to slow down their pipelines, which means there is extreme volatility of rates between lender-to-lender," says Marimow.
So what should you do before you call your lender? "Gather all your financial information," she says. "Ensure you know your current rate, understand the value of your home, credit score and income. Leverage an objective resource for free calculators and advice, and the ability to shop around to get multiple competitive offers."