Do’s and don’ts of mortgage refinancing.

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Do’s and don’ts of mortgage refinancing.

This is not a very technical article. If you are a mortgage refinancing guru you will most surely be bored and completely unimpressed with the advice it contains. However the truth is that making good and bad decisions is not a technical issue it is rather simple to apply common sense to your mortgage refinance choices.
However common sense tends to be rather uncommon especially when we are dealing with emotional issues like refinancing a house and dealing with money you will never actually see. Refinancing a mortgage can be like using a credit card it can be awfully easy to spend without realizing the real cost and spend more than you wanted to or could actually afford.
Here is a completely incomprehensive list of do’s and don’ts that should help jump starting your common sense before doing anything crazy.

Do not..

Trust lenders who are too eager to lend you more money. Borrowing more money is always expensive and lenders who are very free with their cash are probably charging high interest to cover for borrowers that default on their payments or worse have “other” methods to guarantee the loan payments.

Sign a loan without working the real cost of refinancing. When you ask a bank or are offered a refinancing deal on your mortgage find out the real cost/savings on the loan modification. Unless you are in serious financial duress I would recommend never borrowing more but only reduce the tenure, the interest rate or preferably both. Now is a good time to modify your loan because interest rates have dropped so much. However if you refinance your mortgage with a new interest but extend your tenure you will end up paying more for your mortgage which is counterproductive unless you are in serious financial difficulties.

Check the closing fees on your existing loan.
Modifying your loan at current interest rates is generally a good idea that makes financial sense but that depends completely on the overall costs of the loan modification or switch. If your current bank charges you a 5% fee for pre-paying or switching your mortgage you might lose money on the switch regardless of how good the new interest rate is.

Have all your paper work organized in a file.
With mortgages, loans and other financial products paper work is really just that, what makes things work. If you know what paperwork you need and you have it organized in a simple and accessible way you will save time, stress and money.