Mortgage Blog
Quality advice, quality service and the best mortgage rates
3 Mortgage Refinance Pitfalls to Avoid This November
November 13, 2024 | Posted by: Angela Robinson
Mortgage rates have been on a rollercoaster recently. In September, they dipped toward 6% before climbing back up in October. As of October 31, the average 30-year mortgage rate was at 6.72%, and while that rate isn’t exactly low, it’s possible we’ll see another dip in November. If the Federal Reserve makes a rate cut at its upcoming meeting, refinancing could become an attractive option for many homeowners. If you’re thinking about refinancing your mortgage this month, be sure to avoid these common mistakes that could cost you time and money.
- 1. Not Shopping Around
If you spot an appealing refinance rate in November, it can be tempting to grab it right away. However, if one lender offers you a rate lower than what you’re currently paying, other lenders likely have competitive rates, too. So, take the time to shop around before you commit. Apply with multiple lenders and compare offers so you know you’re getting the best possible deal.
Remember to conduct your rate shopping within a two-week period. Each mortgage refinance application triggers a hard inquiry on your credit report, which can temporarily lower your score. But credit bureaus typically only count multiple inquiries within the same two-week period as one, helping you minimize any impact on your credit score. This way, you can get all your rates at once and make an informed decision without delay.
- 2. Not Comparing Closing Costs
Mortgage refinancing often comes with closing costs, which can include fees for application processing, recording, and prepaid property taxes. While some costs, like county recording fees, are non-negotiable, other fees can vary from lender to lender.
Don’t just focus on the interest rate; be sure to compare the closing costs for each offer as well. A lender offering a lower rate might charge significantly higher closing costs, which could negate your monthly savings. Make sure you’re taking the complete picture into account to get the most value from your refinance.
- 3. Not Doing the Math on Whether You'll Stay in Your Home Long Enough to Recoup Your Closing Costs
Refinancing comes with an upfront cost, typically around 2% to 5% of your loan amount. To make refinancing worthwhile, you’ll want to ensure you’ll stay in your home long enough to break even on those costs. Let’s say you’re refinancing a $300,000 mortgage with $9,000 in closing costs, and this refinance would reduce your monthly payment by $200. While that lower monthly payment may seem like a win, it will take you 45 months, or nearly four years, to break even on the cost of refinancing.
If you’re in a starter home or anticipate moving in a few years, you may want to reconsider refinancing. Alternatively, look for a lender with lower closing costs to speed up your break-even period.
Bottom Line
Refinancing your mortgage can save you money if rates drop in November, but avoiding these three common mistakes will help ensure your refinance is a smart financial decision. Take time to shop around, compare closing costs, and do the math on your break-even timeline so you’re sure this is a move you’ll be happy with in the years to come.
