Now that rates are so low, and expected to remain low for the next several months, it’s led many homeowners to think that now is the time to refinance. Refinancing, especially at a time like this, can be extremely beneficial and can save homeowners thousands of dollars. But when it’s time to refinance, there are some things that you should look out for to make sure that refinancing really does work out for you the way you hope it will. And lenders sometimes include legal and banking jargon in their refinancing contracts that many people just can’t decipher.
Some lenders actually ask homeowners to waive their legal rights to speak to a lawyer before they refinance. Although not all homeowners will need a lawyer, many will in order to perform title searches, or just to seek legal advice on the refinancing contract. Waiving this right is something that no homeowner should do, but something that many lenders ask them to.
Some refinancing contracts also include a clause in which homeowners cannot take out a second mortgage on their property. This greatly limits the homeowner’s options and could make them seek debt with much higher interest such as personal loans or credit cards, instead of HELOCs or home equity loans. When it comes time to repay those high-interest debts, homeowners could find it harder than ever – something that’s less likely to happen with a second mortgage.
What might be even worse for some homeowners is that if there are any cash advances that come with the refinancing, some lenders will put limitations on how that money can be spent. So if you’ve refinanced in order to get a little cash for that home renovation project you’ve been meaning to get around to, the lender could tell you that the cash advances must be used to pay back credit card debt, or for some other use. Many, many homeowners go into refinancing knowing what they want to do with any extra cash they receive from that refinancing; and you don’t want to be the one who finds out too late that you can’t use the money for that after all.
So how are you supposed to break down your refinancing contract so that you can actually understand what you’re signing? You could just ask the lender about any technical jargon that you don’t understand, or you could use a mortgage broker. Either is a good choice, but remember that when you work with a broker they’ll not only explain the contract for you, but they’ll also search the products that different lenders offer and find you the best one.
