Refinancing a home mortgage can be an intimidating task. With so many choices how do you know which loan is right for you? How do you protect yourself from predatory lending practices? Doing you homework before applying is the answer; here is what you need to know about refinancing your mortgage and protecting yourself from predatory mortgage lenders. There are a number of mistakes many homeowners make when applying for a mortgage. These mistakes range from overpaying closing costs, damaging your credit score while shopping, to accepting mortgages with prepayment penalties. Here are steps you can take to avoid costly mortgage mistakes. Get Pre-Approved When Shopping When shopping for a mortgage applying for pre-approval can help avoid common homeowner mistakes. When you apply for pre-approval make sure the lender is not accessing your credit. Credit inquiries from lenders are recorded on your credit history; having too many of these in a short period of time can damage your credit score. Damage to your credit score could result in paying a higher interest rate for your mortgage. Make sure the lenders you are screening do not access your credit; do not give out your Social Security number when shopping for a mortgage. Avoid Prepayment Penalties Make certain your first mortgage does not have a prepayment penalty in the loan contract. Many homeowners take out mortgages with this penalty and do not even know it. The durations of these penalties can last anywhere from six months to as long as five years. If your loan has a prepayment penalty and you refinance or sell during this time frame you will be required to pay the penalty. Prepayment penalties can be quite steep; you could be required to pay as much as six months worth of interest on 85 percent of the original mortgage balance. Make certain your new mortgage does not come with a prepayment penalty. If the lender you are working with insists on the penalty, find a new lender. Shop Smartly When comparing mortgage loan offers make sure you are comparing all aspects of the loan, not just the interest rate. Closing costs vary from lender to lender; homeowners frequently overpay closing costs because they did not pay close enough attention to this expense. Use the Annual Percentage Rate (APR) to compare fees; this APR factors in all expenses and lender fees. To learn more about avoiding common mortgage mistakes, register for a free mortgage guidebook. |
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