Be on guard against those low, low mortgage rates—you may end up
spending more by refinancing than if you had stuck with your current
mortgage, even if your new interest rate would be under 3 or 4 percent
financial planners warn.
Here are 3 warning signs for not refinancing your home at a lower rate:
—You’re one of the many homeowners who owe more than what the home is worth. Lenders
may ask you to pay a higher rate of interest, perhaps a quarter or half
percent more than the average national home loan interest rate,
mortgage brokers say. Even worse, a prospective lender may ask you to
pay property mortgage insurance, which will add thousands of dollars to
the cost of your loan, says Deerfield Beach, Fla., financial planner
Blair Shein.
—There’s a chance you might move to take a new job. If
you don’t stay in your home for at least two years then you may actually
lose money on refinancing, says Plantation, Fla., financial planner
Matt Saneholtz, who is president of the Financial Planning Association
of Greater Fort Lauderdale. That’s because you won’t have time to recoup
the closing costs, he said.
—You will end up paying more. If you have less than
five years to pay, then you will generally pay more if you take out a
longer loan, even if it offers a much lower interest rate, Shein said.
That’s because the longer loan length means more interest costs although
your monthly payment will be smaller, he says. You only come out ahead
if you continue making your existing loan’s bigger payments on the new
loan. That will ensure you will pay less interest — and pay off the loan
even quicker, he said. “But the reality is that most people don’t
that,” Shein says.
Homeowners should examine all the costs before signing up for a new
loan. “Do the math,” financial planner Saneholtz says. And beware of the
hidden closing costs: You may not have to pay any when you sign for the
mortgage, but those costs will be added to your new loan — often
involving thousands of dollars, he says.
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