6 Common Misconceptions on Refinancing Your House
Refinancing your house is the process of changing your mortgage from an interest-only to one with fixed interest rates. You can do this to take advantage of lower interest rates over time or because you want to change your mortgage sooner rather than later. Regardless of the reason, it’s something that many home-buyers don’t understand and think will be something that they have to do once and for all. In reality, refinancing your house is something that almost anyone can do and does every day. Let’s look at some of the misconceptions about refinancing your house.
1- Refinancing is For Homeowners Only
Many people have the misconception that refinancing their house means that they need to take out a second mortgage. This is not the case at all. Refinancing can be something that all home-buyers do and will benefit everyone, even those who currently have a mortgage. There are situations where it’s necessary, but it’s rarely a requirement to refinance.
2- Closing Costs are Expensive
The biggest misconception people have about closing costs is that they are expensive. In fact, they are often quite affordable. Most home buyers don’t realize that when they sign a contract to purchase a house, they are also signing a contract that includes closing costs. These closing costs are unique to the homebuyer and vary from state to state. Some common closing costs states may charge include HVAC costs, wiring charges, inspections, stone-working, and more.
3- You Need a Perfect Credit Score
It might surprise you to learn that you don’t need a perfect credit score to qualify for a refinance. While a perfect credit score is helpful, it’s not always necessary to refinance your house. A minimum credit score is required to borrow money in most cases. All that most lenders will do is give you a better interest rate on your existing loan if you don’t have a perfect credit score.
4- You Have To Take Out A New Mortgage To Refinance
This is one of the most common misconceptions about refinancing your house. It’s the one misconception that’s more of an urban legend than anything. In truth, refinancing your mortgage is something that almost anyone can do. For example, you can use a home equity loan to refinance your mortgage. And since you’re refinancing the loan, it will change its form. That is, you can choose between a loan or an equity line loan. But remember, when you refinance, you’re swapping one type of loan for another. In other words, you’re taking out a home equity loan and refinancing it to a conventional loan.
5- It’s Terrible For Your Credit
One of the biggest myths about refinancing your house is that you’re doing it for bad credit. But that’s not the case at all. Refinancing your mortgage is actually great news for your credit score and can help you score better on future mortgage applications. What this refinance will do is give you access to better terms and a lower interest rate.
6- All Lenders Offers the Same Rates
Some people worry that all lenders will charge the same rates when they refinance. Most lenders will charge you a higher rate to refinance than you would have paid on your current mortgage. This is because the bank that’s providing the new loan will make a profit from it. When you refinance, you’re swapping one type of loan for another. And different types of loans have different rates.