Top 3 reasons homeowners don’t refinance their mortgage

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Refinancing your mortgage may be more accessible than you think. It’s true that the process can be daunting at the outset — getting to closing requires providing a lot of documentation and it can be a bit time-consuming — but now is still a great time to consider a refi thanks to the ongoing trend of historically-low interest rates.

Some 18.5 million homeowners meet the underwriting criteria and could also cut their interest rate by at least 0.75 percent via a refinance, according to data firm Black Knight. The average refi candidate could save $304 a month.

With that in mind, here are some of the top reasons people skip refinancing, and how to get past the stumbling blocks to saving money every month on your mortgage.

1. I’m not happy with the mortgage rates I’m being quoted

Unless you’ve refinanced very recently, you should be able to benefit from getting a lower rate. Mortgage interest is generally at an all-time low right now, so you should almost certainly be quoted lower rates than you have on your existing mortgage. If you’re not being offered lower rates, you should shop around more. Don’t be afraid to leave your existing lender, and work with a mortgage broker if you’re not finding good deals on your own.

Also, don’t wait for rates to go lower than they are now. It’s unlikely that they are going to fall much more, and a few tenths or hundredths of a point shouldn’t be the only thing standing between you and potential savings.

2. I can’t afford the closing costs

Closing costs are typically 2 to 5 percent of the loan’s total value, and that can come out to thousands of dollars you owe before you realize the savings of a new mortgage. However, you shouldn’t let that put you off the idea of refinancing outright.

“Homeowners often balk at the upfront costs of refinancing, but there are some important considerations not to overlook,” said Greg McBride, Bankrate’s chief financial analyst.

“First, you may be able to roll many of those costs into your loan and not pay them out of pocket if you so choose. Secondly, you will get a month where you don’t need to make a mortgage payment. And third, while you may have needed to fund the escrow account for your new lender at closing, the escrow account built up at your previous lender will be refunded to you after closing so you get much of that money back. Net all this out and the out-of-pocket expense can be a lot less than meets the eye and something you can recoup fairly soon considering how much you can save by refinancing at today’s low rates.”

Many lenders nowadays are doing zero-cost closings. They do this by making your interest rate slightly higher or adding the closing costs to your principal owed. That may make your monthly payments a little more expensive, because the costs will get rolled into your loan, but if the upfront payments are all that’s keeping you from refinancing to a lower rate, you shouldn’t be put off. It’s also worth asking your lender if it will waive some of the fees associated with your refinance, particularly if your loan is with an institution where you do other banking as well.

3. I don’t think I can qualify for a mortgage

If you already have a mortgage, you’re probably eligible to refinance. Unless you’ve taken a significant credit hit recently, or had a major change in your employment situation, it’s likely that you will be able to get a new loan. If your credit score has taken a hit, consider an FHA mortgage, which has looser standards for borrowers.

Alternatively, if you recently lost your job or are in serious financial distress, you should get in touch with your lender about forbearance options. That may allow you to temporarily pause your payments, and then you can explore refinancing again down the road when your finances have stabilized more.

Top tips to get ready to refinance

  • Shop around — the more lenders you reach out to for quotes, the more likely you are to get an offer that works for you. Consider working with a mortgage broker.
  • Make sure your credit score is good. The stronger your score, the likelier it is that a lender will give you a new loan.
  • If upfront costs are the issue, see if you can wrap them into your new loan. It’s a little more expensive to do this in the long-term, because you wind up paying interest on the fees, but if this is the only barrier to monthly savings, it may still be worth it.

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