I'm sure you've heard: mortgage rates are pretty low these days. They're currently hovering around 4 percent, a rate that has saved borrowers $2,900 in first-year interest payments after having refinanced in the first quarter of 2012. According to Moody's Analytics, low rates and mortgage refinances have helped consumers to save $46 billion over the past three years.
Given these numbers, I wouldn't be surprised if you're considering refinancing your own mortgage. However, according to a recent article in the Wall Street Journal, you need to brace yourself for a long waiting period for the refinance to go through: it now takes the nation's biggest mortgage lenders an average of 70 days to complete the refinancing process. One year ago, it only took them 45 days.
A long wait isn't the only thing to consider before you start the refinancing process -- SmartMoney magazine ran a list of the other pitfalls of refinancing your mortgage. Here's a look at what they say you need to watch out for:
- Refinancing means starting from scratch. Homeowners who sign up for a 30-year mortgage pay down about 5 percent of the principal over the first seven years, with the rest of the money going towards interest. Refinancing after the seven-year mark means starting that payment process all over again.
- Closing costs could outweigh the savings. Calculate your total monthly savings at the new rate and compare that against what you will pay in closing costs. Make sure you're planning on staying in the home long enough to recoup those closing costs.
- Hidden fees add up. Lenders are required to give borrowers a good-faith estimate, which details the total cost of a refinance. However, it's up to you to go through this paperwork with a fine-toothed comb and make sure there aren't any sneaky fees, like closing costs that have been rolled into the overall mortgage amount.