11 Aug, 2014
When it comes to mortgages, there are many misconceptions that people believe to be true. When people follow through with these myths it can be incredibly detrimental to their financial wellbeing, and so it is important to be well versed in how mortgages work and the many myths that surround them. Here are five common mortgage refinance myths that can cost you if you aren’t careful.
A 30-Year Fixed Rate Mortgage is Always the Best Option
In this day and age adjustable-rate mortgages make up about a third of all home loans. Yet the rates on these 30 year and 15 year mortgages are at an all time low, which as an article by Market Watch points out, can put your home at risk and in fact, it is highly recommend that you avoid ARMs at all cost. Although a 30-year mortgage makes sense if you plan on living in your home forever, this is not the case for many people. Instead, it is recommended that you look at adjustable mortgages, especially the increasingly popular hybrid adjustable.
Pay Off Your Mortgage as Soon as Possible
It is often the case that people put much more importance on safety and security than they do on receiving a return, which isn’t always the best. It is fine to pay off your mortgage early if doing so will meet one of your long-term financial goals. For instance, if you are soon to be retired and want to eliminate your mortgage debt in order to retire debt free than this isn’t a bad idea. However, that being said it is more ideal in most other cases to pay off debt that has a higher interest such as credit card debt in order to avoid paying more than necessary.
You Need a Down Payment of at Least 10 to 20%
The idea that you need such a large down payment to obtain a mortgage is completely false. Many mortgage lenders out there have loan programs for those who can only afford to make a down payment of 5% or less. This includes those who can’t put any money down. Many people end up having to pay a substantial amount of money in rent every month as well as pay their bills on time, and so they end up not having very much money to save. However, it is a misconception that they are forever trapped in a renting cycle because they don’t have enough for a down payment. If you don’t have enough for a substantial down payment then keep in mind that you still have several options.
You Can’t Take Out a Mortgage If You Don’t Have Perfect Credit
This is not the case, especially in this day and age where lenders will go out of their way to lend to people even if they don’t have stellar credit. However, keep in mind that those with blemishes on their credit history will likely have to pay extra in interest on their mortgage loan. The good news is that one or two late payments won’t put you in a category of having to pay a higher interest rate, however a history of late payments or sparse credit history will. It is recommended that you do your homework and talk to several lenders if you have a damaged credit history.
Your Mortgage Term has to be the Note Term
Lots of people avoid refinancing because they don’t want to begin all over again with an all new loan that is to be paid off in another 15 to 30 years, however you can always set up a shorter payment schedule. In this way your mortgage payments will be lower than before and you will save money each month, and over the same period of time.