Myths about Mortgage Refinancing You Shouldn’t Believe

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When the interest rates in the market begin to fall, the first thought that might cross your mind is to get your mortgage refinanced. Many mortgage lenders who may have contacted you may even have started offering you better rates to get your loan refinanced. Nevertheless, without knowing much about how a mortgage refinance might help you it is not wise to go any further.

While there are many who think refinancing is a good way to make their mortgage payments affordable, there are others who shy away from the process. The reason behind this could be the many myths that surround the concept of mortgage refinancing. This article is an attempt to dispel all those myths, give you more clarity and help you change your approach to refinance.

Here are a few such common refinancing myths:

Myth #1: Refinancing may not help you save much

Considering the difference between the interest rates of the loans, refinancing may not make much sense to you. But if you take into account the long run, even a 1/8th reduction in your rate of interest could help you save tens of thousands on your loan. Check out the current rate of mortgage and see how much you can save over the term of your loan, before taking any decision.

Myth #2: You can’t get a refinance without 20% equity

Many home owners are of the impression that they can’t apply for a refinance unless they have at least 20% equity in their homes. However, this is not true. They are 100 percent eligible to apply for a refinance even if they don’t have the 20% equity. They might however, have to pay mortgage insurance. Mortgage insurance does mean paying premium on a yearly basis over the term of your loan; but if you can save a significant sum of money in the long run, refinancing might still be an excellent move.

Myth #3: Refinancing doesn’t make sense if you haven’t reached the "break-even point" of your current loan.

Every mortgage comes with a "break-even point," where in you would have recouped the entire amount that you paid against original closing costs by saving through a low interest rate. Most people are of the opinion that unless one reaches this "break-even point," it is not wise for them to get their mortgage refinanced. Nevertheless, this is a myth. In fact refinancing your mortgage can help you reach that overall break-even point, even faster.

Myth #4: Modifying may be a better option than refinancing

Although many mortgage refinancers offer better rates through mortgage live transfer leads, most homeowners look forward to negotiating with their current lenders for better rates. They think this is the best way to solve their problems. Nevertheless, it is always best to shop around and fish for more competitive prices and then decide on the better option between mortgage modification and refinancing.

Myth #5: The only aim of a Refi is to help you obtain a lower interest rate

This is definitely one of the main objectives of refinancing; but not the only one. There are many other reasons to pursue a refi. You can obtain a cash-out refinance and do renovations in your home. Or you can use the excess money to pay back your high-interest debts. You might want to pay back your loan in a faster way and get debt-free as soon as possible. It is not only about the rate; a refi can help you with a number of things.

Myth #6: The process of Refi involves a lot of paperwork

Applying for a mortgage refinance is more or less the same thing as applying for a new mortgage loan. You will have to sign and submit the same documents again. With so many online lenders contacting you it must be easy to submit your documents digitally and obtain your refi as soon as possible. The list of documents to be submitted for a refi includes:

• Pay stubs from the past 2 to 3 months

• Tax Returns of two years and copies of previous W-2 or 1099 statements

• Your credit report

• Statements of outstanding debt

• Statements of savings accounts, retirement account, bonds, certificates of deposits, and stocks that will prove your capacity to pay back your loan.

Keeping these copies handy will help you score a better refinancing deal in future.

Myth #7: You will still need cash to cover your closing costs

Like in the case of an original mortgage, there will be closing costs even while refinancing a mortgage. Nevertheless, there is no rule that you have to pay your closing costs up front. You can take "lender credits," and lower your closing costs, if you are ready to pay a slightly higher rate in exchange. You can roll-in the closing costs and get them added to your mortgage loan. This way you can even have a ‘no-cost’ refinance.

Myth #8: every borrower will know everything about refinancing a mortgage

Purchasing a home through a mortgage doesn’t always make you an expert in refinancing. You might have forgotten a thing or two or may not be aware of the latest changes in application -process. Get in touch with a home loan counselor and get all your queries about refinancing, clarified.

A refi is indeed a good option to make your loan payments affordable or to get rid of your debt faster. However, you will still have to see if you qualify for one, before replying with a "Yes," to any mortgage refinancer who comes to you.

Author writes for Heritus. A mortgage live transfers generation company in New York, US.