With mortgage interest rates, hovering below 5-percent, homeowners are racing to refinance and lower their monthly payments. But experts say the decision is not right for everyone. They warn people about the five pitfalls of refinancing.
More than eighty-percent of all home loan applications are now from people looking to refinance.
"What do you owe and what's it worth? that's the big question," said Mortgage Banker, Alex Stenback.
Stenback said owing more on a house than it's worth is the most common pitfall today.
"The value of our house has dropped so much that we just don't have enough equity to be refinancing right now," said homeowner, Lindsay Hillesheim.
Stenback said pitfall number two is the cost of refinancing. Some homeowners are finding a lower interest rate isn't worth the cost to refinance.
"Generally speaking, if you can recoup your costs in less than 30 months, that's going to make sense for you," said Stenback.
An adjustable rate mortgage doesn't automatically mean refinance. That is the third pitfall. Stenback says the cost of locking in a rate might be more than your monthly savings.
Pitfall number four is timing. Stenback warns these rates won't stay low forever. If refinancing is right for you, he advises clients to do it before rates begin to climb, or before you are laid off and can't refinance.
The final pitfall is finding someone to make it happen. Stenback says the lending industry is trying to catch up with the new rush to refinance.
"You have to get in line. Everybody can't refinance on the same day, and it will go faster in some places than others," said Stenback.
Mortgage experts also says it's important to shop around to find the best rates, the lowest fees and someone who can get the job done fairly soon.
Homeowners should be prepared to fork over between $2,000 and $5,000 in fees to refinance.
KSTP.com
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