If you’re currently toying with the idea of applying for a mortgage refinancing, there are certain things you have to consider. By holding your horses and doing diligent research, you’ll know how to play your cards right and avoid doing it for all the wrong reasons.
But, whatever your considerations may be for refinancing your mortgage, one critical factor that you have to mind certain pitfalls that would bring you nightmares in the future. These pitfalls are, thankfully, perfectly avoidable and it depends on you whether you’ll still fall for them despite receiving a prior and appropriate warning.
Here are the five common mortgage refinancing traps that you have to avoid at all cost:
You don’t intend to live in your current home for long.
There are quite a lot of homeowners who commit the terrible mistake of applying for mortgage refinancing without actually intending to stay in their home for a long time. This is just among the biggest blunders that you could commit as a homeowner.
One major reason behind mortgage refinancing is to pay lower monthly payments while you allocate your savings to other expenses. Such a benefit would entail some financial obligations to the mortgage broker and the mortgage company that you applied to, like professional fees for the broker and closing costs to the company.
If you intend to stay long enough in your property until you could fully pay your refinanced mortgage, then it’s a deal worth taking. However, if you plan to move out before you could complete your payments, then it’s a clear waste of time and money.
Agreeing to an arbitration clause.
The law offers a certain degree of rights and protection to homeowners with mortgages, so they could keep their properties intact. However, such protection can be canceled out when the mortgage refinancing documents show an arbitration clause duly signed by the property owner.
By agreeing to an arbitration clause, you are essentially giving away portions of your lawful protection and subjecting yourself to a lawsuit. It’s open knowledge that arbitration costs money and eats away much of a defendant’s (the person being sued) time on court proceedings.
If you don’t want to experience these inconveniences, then you should never agree to an arbitration clause if your mortgage refinancing contract has one.
Falling for high interest rates and fees.
There are mortgage companies that would try to get as much money from homeowners applying for mortgage refinancing by charging high-interest rates and fees. This is something that a lot of property owners have to deal with and accept. But, if you don’t want to end up being financially strained in the future, you should avoid falling for this unfair deal.
You could do so by carefully reviewing the fine prints of all relevant documents before affixing your signatures on them. Another way is to compare the rates and fees being charged by different lenders for the same refinancing period. This will allow you to zero in on the one that offers the lowest rates and fees to get the longer end of the stick, so to speak.
Applying for refinancing with a low credit rating.
While you still have a chance of your application getting approved, doing so on a low credit rating may not be in your best interest. Remember that you’re getting a refinancing so you could enjoy a competitive interest rate. This is something that you can’t expect to get if your credit score is on the low end of the spectrum.
As such, you must first try to find ways to improve your credit rating to a point where it’s possible to snag a more favorable term. This will be quite a tasking proposition but one that would be all worth it in the long run when you start paying your monthly dues.
Agreeing to a fraudulent practice.
Some mortgage companies do fraudulent practices like consciously teaching homeowners to make their monthly income look bigger than their actual take-home pay. Lending companies do this so the property owner could qualify for expensive properties that the latter couldn’t possibly pay for, given their true income.
If what your mortgage lender asks you to do seems fishy, then follow your instinct and better judgment. You’ll be better off not getting your mortgage refinanced if you’ll end up in deep trouble financially and legally.
Keep in mind that mortgage refinancing has its good points and bad points. By considering these warning signs, you can easily avoid falling for the pitfalls and end up getting the perfect refinancing deal.