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    It may seem like everyone is refinancing their mortgages these days — and it’s no wonder why. Historically low rates have been making headlines throughout the year.

    The chance to lower your monthly mortgage payment is probably appealing, and you might be considering a refinance, too.

    Before you get the process started, though, study up on these all-too-common refinancing mistakes. They could cost you.

    1. Automatically using the same lender.

    While you can certainly use your same mortgage lender when refinancing, it’s definitely not required.

    Rates and loan products can vary greatly from one lender to the next. So if you’re only considering one lender, it might mean not getting the best rates that are out there. Ultimately, that could mean a higher monthly payment and more paid in interest over time.

    2. Not tending to your credit first. 

    Your credit will play a major role in both your ability to refinance and the costs of your new loan. The better your score and the stronger your credit history, the easier and more affordable it will likely be. A low score and lots of late payments? That could make your refinancing journey harder (not to mention costlier).

    If you want the best shot at a successful refinance — one that doesn’t break the bank — then take some time to prep your credit first. Pay down debts and get current on any overdue accounts.

    3. Forgetting about closing costs.

    A refinance doesn’t come for free. Just like with your first mortgage loan, you’ll need to pay closing costs when refinancing. Always make sure you get a full loan estimate before moving forward with a refinance. This will detail how much you’ll be expected to bring to closing, and it can help you gauge how much saving you’ll need to do before taking the next step.

    Though some lenders let you roll your closing costs into your new loan, that’s not always the best option for everyone. Rolling in closing costs can mean a higher loan balance, a higher monthly payment, and more in interest costs in the long run.

    4. Not knowing your breakeven point.

    If you’re refinancing to lower your interest rate or long-term costs, then it’s critical you calculate your breakeven point before moving forward. The breakeven point is simple: It’s when you’ve saved enough from the lower interest rate to make up for the costs of refinancing in the first place.

    Here’s an example: If a refinance comes with $5,000 in closing costs, and the new interest rate saves the borrower $100 on their monthly payment, then the breakeven point would be 50 months. Put simply, it would take 50 months for that refinance to be financially worth it.

    Will you be in the home that full 50 months? If you’re not sure, there’s a chance the refinance could cost you more than you save.

    5. Failing to get organized.

    Refinancing is essentially replacing your old mortgage with a new one. As such, you can expect the same documentation requirements you faced on the original loan. You’ll need tax returns, paystubs, W-2s, bank statements, and lots more to show your lender.

    If you really want to ensure your refinance goes off without a hitch, it’s important to gather these items early — before you start applying for loans. You may also want to prep your employer. The lender will likely contact them to verify your employment, and a speedy response is key.

    6. Not choosing the right refinance.

    There are a few different ways to refinance. You can refinance from an FHA loan to a conventional one and get rid of mortgage insurance, you could choose a streamline refinance to cut down on documentation requirements or avoid a credit check, or you can even refinance and take cash out of your home’s equity if you’re facing big expenses.

    To make sure you’re choosing the absolute best refinance product for your goals and budget, you should always talk to a knowledgeable loan officer. They can point you in the right direction, whether you end up using their company or not.

    Thinking of refinancing?

    If you’re considering a refinance, get in touch with Embrace Home Loans today. We’ll walk you through your options.

    Your mortgage options for a smooth journey home.

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