Refinancing your house

Refinancing with your existing lender without shopping around. Your existing lender may not have the best rates and programs. There is a general misconception that it is easier to work with your current mortgage company. In most cases, your current mortgage company will require the same documentation as other companies. This is because most loans are sold on the securitized markets and have to be approved independently. So even if you have been very good at making payments to your existing lender, they will still have to do their verifications all over again.

Not doing a break-even analysis. Find out what the total cost of the refinance is, then figure out how much you will save every month. Divide the total cost by the monthly savings to get the number of months you will have to stay in the property to break even on your refinancing costs. Example: if your refinance costs $2000 and you save $50/month, your break-even is 2000/50 = 40 months. You should refinance if you plan to stay in the house for at least 40 months.

Note: The break-even analysis only works if you are refinancing to save money. If you are refinancing to switch from an adjustable to a fixed loan, or from a 30-year loan to a 15-year loan, it is much more difficult to perform a break-even analysis.

Paying for a valuation when you think that the house may value too low. Have the valuation company do a desk review appraisal (typically at no charge) to provide you with a range of possible values. Your mortgage company can ask their valuer to do this for you. Do not waste your money on a full valuation if you are doubtful about the value of your house.

Signing your loan documents without reviewing them. Do not sign documents in a hurry. Whenever possible try to get documents that you will be signing ahead of time so you can review them. It is advisable to seek legal advice.

Not providing documents to your mortgage company in a timely manner. When your mortgage company asks you for additional paperwork, jump on it! Do not complain. They are trying to get you approved, not trying to hassle you unnecessarily! Jump through the hoops as quickly as possible. Borrowers who do not respond to requests for documentation quickly enough run the risk of paying higher rates and/or fees because circumstances may change.

Not getting a fixed rate loan offer in writing. When a mortgage company tells you they have fixed your rate, get a written statement which details the interest rate, the length of the fixed rate and details about the program.

Pulling cash out of your credit line before you refinance your first mortgage. Many lenders have "cash-out" policy requirements. This means that if you pull cash out of your credit line for anything other than home improvements, they will consider the refinance to be a "cash-out" refinance. This leads to much stricter requirements and can in some cases break the deal!

Getting a second mortgage before you refinance your first mortgage. Many mortgage companies look at the combined loan amounts (i.e. the first loan plus the second) even when they are refinancing the first mortgage. If you plan on refinancing your first, check with your mortgage company to find out if getting a second will cause your refinance to get turned down.