Tag Archives: homeowners

Don’t Make These Mortgage Refinancing Mistakes

With 30-year fixed rate mortgages approaching historical lows of 3%, you may be thinking about refinancing an existing mortgage. But you better read the fine print before signing on the dotted line to avoid paying too much money. Here are some common mistakes homeowners make when refinancing their mortgage.

  • Not shopping around. When looking to refinance a mortgage, many homeowners simply check a couple advertised rates and pick the lowest one. But there are many factors affecting the total cost of refinancing, so it pays to carefully look at not just rates but also terms and fees offered by different lenders. Remember that a mortgage with a lower rate and higher closing costs from one lender can ultimately cost more overall than a mortgage with a higher rate but lower closing costs from another lender.
  • Saying yes to current mortgage loan forbearance. Loan forbearance occurs when your current lender allows you to delay making a payment or allows you to lower your payments. This is a common offer during the current pandemic. If you are considering refinancing in the future, think twice before taking advantage of this offer. Accepting a bank’s offer to skip a couple payments, even during a pandemic, may signal cash flow problems that could negatively affect your mortgage refinancing options.
  • Not improving your credit score. The willingness of banks to lend you money at favorable rates is often contingent on your credit score. You must therefore know your current score and actively work to improve it. So don’t take out a new loan or credit card in the months leading up to refinancing. Also pay your bills on time and never use more than 15% to 20% of your available credit line on credit cards. By doing this you can vastly improve your interest rates and related closing fees.
  • Not looking over the good faith estimate. Origination fees, points, credit reports and other fees are all included with closing costs when refinancing a mortgage. These fees aren’t finalized until you receive a good faith estimate (GFE). Any changes you notice to fees on the GFE compared to what you were originally told is a red flag. Compare the final refinancing document you’re about to sign with the rates and fees originally presented to you. Challenge any increases.

By being aware of refinancing pitfalls, you can actively eliminate any surprises and create a situation where multiple lenders are fighting for the right to lend you funds.

Don’t Forget to Review Your Insurance

When was the last time you reviewed your insurance coverage? An annual insurance review makes good financial sense. Here are points to consider as you review your various insurance policies.

Health care – If you have an individual policy, investigate whether your employer, union or professional association offers a less expensive group policy.

Long-term care – Long-term care insurance may be advisable if you’re between the ages of 55 and 72 and you don’t have enough assets to fund long-term care.

Life – The protection you need depends on the number of people who rely on you for support. Whole, variable, and universal life policies combine insurance coverage with an investment future. If you want insurance only, consider term life.

Disability – Studies show that less than one in six Americans own enough disability insurance to provide a comfortable lifestyle during a two-year disability. Disability coverage is generally limited to 60 percent to 70 percent of salaried income. If you have adequate emergency funds, electing a longer waiting period for coverage to kick in will reduce your premiums.

Homeowners – With fluctuations in the real estate market, it’s possible that your home is now under- or over-insured. Coverage equal to the current replacement cost (excluding land), not its original cost, is advisable.

Auto – Liability insurance is a must, but consider dropping collision coverage if you can afford to repair or replace the vehicle on your own. Collision insurance is probably required if your car is financed or leased.

Umbrella liability – Personal liability coverage is included with most homeowner and auto policies. However, if you own substantial assets, umbrella coverage will provide additional protection at minimal cost.

Unnecessary insurance – Carefully examine policies with narrowly defined coverage (such as credit, travel, or cancer insurance). They often duplicate other coverage in policies you may already own.