The 7 mistakes I made when refinancing my mortgage

By Linda Bell Bankrate com When my husband and I refinanced our mortgage in we felt confident we were making the right move Since both of us had exceptional credit we knew we could reduce our mortgage rate by one percentage point or more as is considered de rigueur when refinancing A no-brainer right In retrospect I wonder We should have considered other factors beyond the rate ranging from the overall cost of refinancing to its impact on our home equity stake And we should ve made particular comparisons among lenders instead of rushing off to our current bank Here are seven missteps I made when refinancing my mortgage in and what I would do differently in the modern day Focusing only on the interest rate I have to admit I was laser-focused on the fact that we could lower our mortgage rate by and shave almost off our monthly mortgage payment That felt like a huge win and in particular means it was What I didn t consider was the real cost of refinancing I didn t fully grasp the importance of the APR annual percentage rate The APR reflects the total cost of the loan not just the interest rate but lender fees points and other closing costs Your APR can be as much as a full point higher than the quoted interest rate Lesson learned The APR is inevitably higher than the interest rate and is the real number you should compare when evaluating offers If I could do it over I would run the numbers through a mortgage refinance calculator to understand the total cost of the refinance including how much interest we would pay over time and closing costs not just the monthly savings Not paying closing costs upfront Refinancing isn t free Like a primary mortgage it comes with closing costs various fees associated with applying for administrating and underwriting the loan that you pay upfront unless you roll them into the mortgage instead A no-closing-cost refinance which lets you do that sounded great at the time Between the appraisal title insurance lender fees and everything else these costs added up and I didn t want to pay a big sum out-of-pocket Plus adding these expenses into the loan just felt easier What I failed to grasp When you roll over closing costs the lender adds them to the principal of the new mortgage and the amount interest is charged on That results in a larger loan balance higher monthly payments and more interest paid overall over the life of the loan Lesson learned It s been more than years since we refinanced I know by now we ve recouped the cost of the loan But at the time we didn t crunch the numbers in a mortgage refinance break-even calculator to weigh our options If I were refinancing now I would be more interested in paying off the mortgage sooner rather than realizing the immediate savings Not negotiating fees While selected are non-negotiable a large number of refinancing fees aren t set in stone they re at the lender s discretion That means the lender can lower or even waive these charges including big ones like the origination fee Lenders may also offer discounts for automatic payments or paperless statements to stay competitive and win your business In our circumstance we totally accepted the terms the lender offered as-is without asking any questions We don t know for sure if they would ve changed anything but if you don t ask you don t get Lesson learned Negotiation might not wipe away every fee but even trimming a inadequate hundred dollars can make a difference Comparing refinance offers from various lenders puts you in a much better position to get the best deal Which brings me to my next mistake Not shopping around Refinancing is like buying anything else You better shop around as the song says We made the mistake of refinancing with our mortgage lender without even considering any other institution mainly because it was easier I didn t compare rates fees customer reviews or loan terms across companies I was just happy we were approved and ready to move forward Refinance rates and terms vary from banks credit unions and online lenders Even if you ve been a loyal customer your current lender might not have the best deal Lesson learned Get quotes from at least three to five mortgage refinance lenders and compare their overall costs Even a small difference in the rate like can lead to key savings over time Ignoring the impact on home equity The greater part key consideration in refinancing is how much home equity you have It can eat into your homeownership stake especially if you borrow against portion of your home s value with a cash-out refinance Related Articles MPR s parent company announces layoffs citing cuts in establishment aid Federal regulators approve Paramount s billion deal with Skydance capping months of turmoil Millions of HydroTech hoses recalled after hundreds burst leaving at least people injured Union Pacific and Norfolk Southern confirm merger talks to create coast to coast railroad Winners losers movers Highlights of US auto sales six months in If you recall was a precarious time for the U S financial system near the official tail end of the Great Recession To say home values were dropping would be an understatement Between December and December home prices fell on average according to the Federal Reserve Bank of Philadelphia At one point like millions of homeowners we were really underwater on our mortgage meaning we owed more than the home was worth And rolling in closing costs didn t help the situation either By increasing our overall mortgage balance we chipped away at the homeownership stake we had built your home equity equals your home s value minus the mortgage the amount of the home you own outright Lesson learned Since then we have recouped the equity we lost and more But particular homeowners aren t so lucky ATTOM Statistics Solutions reports that more than million properties were still seriously underwater in a full decade after the housing predicament ended Seriously underwater mortgages are classified as those at least higher than the homes estimated territory value Constantly consider how much a refinance will impact your equity If home values fall or you plan to sell before prices recover refinancing can do more harm than good Not buying points Knowing that we didn t plan to move we presumably should have taken a longer-term view when we refinanced At the time we chose not to buy points to lower our interest rate as we didn t want to spend extra upfront Points will typically cost you of the loan amount which in turn lowers your interest rate by about percentage points While that may not sound like a big difference over the life of a loan it can really add up Let s say you are refinancing your mortgage to a -year fixed loan at interest Here s how the savings might break down Without buying points a mortgage with a interest rate will cost you over the life of the loan Buying one point for lowers the interest rate to and you will pay over the life of the loan Buying two points for lowers the interest rate to and you will pay over the life of the loan In other words paying now can save you in interest costs Lesson learned Buying points doesn t make sense for everyone as it will extend your break-even point on the refi But if you re planning to stay put for the long haul it s worth doing the math Fifteen years after the refinance it s clear we ve paid far more in interest than we would have if we d made that resources What felt like saving money ended up being a costly mistake Overlooking term options When we refinanced we went from a -year loan which we d already been paying for five years into a brand-new -year mortgage In hindsight we missed a big opportunity By refinancing into another -year mortgage we basically reset the clock effectively extending our mortgage and stretching our debt to years That means we ll end up paying more in interest over the long run even with the lower rate What I didn t realize was that refinancing into a - or -year loan could have dramatically reduced what we paid over time even if the monthly payment was a bit higher Lesson learned Refinancing doesn t just have to be about lowering your monthly payments It s also a chance to shorten your loan term and potentially save a lot in interest The moral to my mortgage mistakes story Do I regret refinancing our mortgage No but if I could rewind the clock I would approach the process more cautiously I would ve run the numbers more diligently thought harder about the long-term trade-offs and sought more questions upfront about APR and how our home equity might be affected I would ve taken a closer look at the costs we rolled into the loan tried to negotiate fees and considered whether buying points really made sense for us I also didn t explore whether other refi options like a shorter-term loan might have been a better fit or realize how pivotal it is to shop around for the best lender Lesson learned The refinancing process isn t just about snagging a lower rate Sometimes it pays to think long-term even when the short-term savings are tempting Bankrate com Distributed by Tribune Content Agency LLC