Borrowers logically want to refinance when interest rates are lower. While refinancing seems a logical option to partially or fully pay off existing obligations with higher interest, financial professionals counsel borrowers to have a fuller understanding of all aspects of refinancing. Try to avoid these common mistakes when refinancing.

Not much savings can be realized by the refinancing. It’s best to decrease your rate by at least .75 percent to 1 percent. Your savings then will be around $100 for every $150,000 mortgage.

Having no knowledge of the closing cost. By law, closing costs must be disclosed within three days of the loan application. However, there are different approaches to calculating them. You should keep in mind that the closing costs are only estimates before the loan details are finalized. Allow for the maximum closing up costs.

Having no full knowledge of the reasons behind the financing. Besides reducing your interest rate, there are other legitimate reasons to refinance, such as debt consolidation, home improvements or major purchases. In some cases, you may be able to deduct your interest payments on your tax return. In as much as possible, seek the counsel of professionals in these matters.

Not being aware of APR “teaser rates.” It is a practice of some financial brokers to entice clients with attractive APRs which may not be entirely accurate. In most instances, APRs are arrived at by assuming a 30-year mortgage with an accelerated payment scheme. Make sure you know the actual interest rate you will be paying throughout the life of the loan.

Failure to evaluate the pluses and minuses of a variable mortgage rate. ARMs can minimize your monthly payment, but not if additional refinancing occurs. In this case, they can cost more in the long run.

Lack of knowledge of the mortgage broker’s supposed services. The borrower should not experience difficulty in accomplishing the refinancing process. Ask your mortgage broker to provide details of its service plan and performance guarantees.

Not being able to require the mortgage broker about other loan services and the respective rates and other terms. Subtle differences can save or cost you thousands of dollars.

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