It’s a good time to refinance your mortgage but don’t trip over yourself trying to get to the front of the line.
Low interest rates are generating lines out the doors of mortgage lenders
On Tuesday, Sept. 13, 2011, the rate for conforming 30-year mortgages was averaging 4.36 percent, down from 4.42 percent the previous week and 4.50 a year ago, according to the weekly Erate Interest Rate Update, produced by Santa Clara, CA-based Erate.com.
Two days later, Sept. 15, Freddie Mac’s weekly Primary Mortgage Market Survey reported a second week of record lows with an even lower 4.09 percent average, down from 4.12 percent a week ago and 4.37 percent this time last year.
Erate.com reported the lowest 30-year fixed rate mortgage had a 3.65 percent interest rate, also lower than the lowest rate a week before.
Along with a shortage of mortgage industry personnel and ongoing tough underwriting standards, the low-rate rush is contributing to nearly doubling the wait time to close a deal.
Online mortgage portal LendingTree asked its network lenders what are the most common mistakes homeowners make when they dash off to refinance.
Here are the top five.
• Over-estimating the home’s value. You may only think you’ve got enough equity to seal the deal. When home values are depressed, homeowners tend to overrate the value of their homes more than ever. If you owe more on your home than it’s worth, chances are, the lender will say “No.”
Ask a real estate agent for some comparables which will reveal the value of similar (age, square footage, floor plan, etc.) homes in your area. Comparables of homes sold as recently as possible best indicate the value of your home.
Hiring an appraiser will cost you a few hundred dollars, but the investment could be worth it, especially if your home’s value is welll within the amount of the refinance. Who knows, you may even have some equity you can tap and get cash back.
• Overlooking the power of a rate lock. If you are fence sitting hoping for rates to go even lower, some unexpected economic event could push already historically rates in the other direction.
There likely will be a fee, but a rate lock can guarantee you today’s low rate for a period of time or even allow you to get a lower rate should rates sink lower. To get a lower rate with a rate lock ask for a “floater,” but with any rate lock get it and all its terms in writing on a document signed by your lender.
• Focusing only on interest rates. Whenever you are shopping for a mortgage, the interest rate alone is not the bottom line. Also compare lender and title and escrow fees, loan terms, loan type (fixed rate or adjustable rate) and the lender’s reputation. Know and compare full loan costs from several or more lenders.
• Overlooking the loan term. Most homeowners jump at another 30-year fixed-rate mortgage, without considering shorter terms at 20 or 15 years. The rate can be even lower, with less interest paid over the life of the loan, if you can handle the higher payments due to the shorter term.
Where available, a 40-year mortgage could come with a higher rate, but more affordable lower payments due to the longer term.
• Forgetting to get all their docs in a row. Homeowners who received one of those NINJA (no-income, no job or assets) or easy-qualifier mortgages during the last boom may not be aware that mortgage underwriting today isn’t just tough for purchase mortgages but refinanced home loans as well.
You’ll have to prove where you work, your income, perhaps even job tenure as well as your ability, not only pay your mortgage, but property taxes and homeowners insurance. Lenders also want to see that that you have a stash of cash or investments for a rainy day.