Several homeowners plan to refinance their loans when the mortgage interest rates come down. If you’re considering it too, you need to be cautious and look at much more than just the interest rates. This article lists some refinancing mistakes that many homeowners tend to make. Avoid these pitfalls, and you can walk home with better savings.

Refinancing at the wrong time
The rates being low does not mean it may be the ideal time for you to refinance your mortgage, so beware of a few signs before deciding to refinance. Don’t opt for refinancing in the following cases:

• There’s no more than a 0.5 percent difference between the initial interest rate when you bought your home and the current interest rate on refinancing.
• There has been a decline in your credit score since you applied for your initial mortgage.
• Your stake in the home is less than 20 percent.
• You do not have adequate savings to provide for the closing costs, which may account for 2-6 percent of the loan amount.

Having no idea of the documents needed for refinancing
You might be unaware of the documentation required to refinance a loan if you haven’t have taken a mortgage or refinanced recently. Since 2009, regulators and lenders have new requirements in place. So, you will be required to present W-2s for the last 2 years, 2 months of your bank statements for all financial accounts, and pay stubs from the most recent month. On the other hand, you will have to present a copy of your most recent profit/loss statement if you are a self-employed professional.
A lender may also require additional documents, depending on the circumstances and the mortgage type.

Opening new credit accounts and increasing your debt
Lenders will assess your credit before approving your refinancing request, and they will recheck it before settlement. So, applying for new credit or making major purchases on credit will affect your credit standing and may pose hindrances in the approval process. In serious situations, lenders might even reject your refinancing request.
Keep in mind that your credit score may plunge a little every time you start a new credit. A low score may make you unable to refinance your mortgage at a good rate. It also eliminates or lowers the refinance value, so you must not open any new credit for at least 2 years before refinancing your mortgage.

Not shopping around
This is one of the biggest mistakes people make when they refinance their mortgage. You must always get free quotes from the borrower before you move ahead. If you get the loan from the same lender who presented you with the original mortgage, there is a fair possibility that they might not have the best programs or rates. People feel it is easier to work with the same lender, but there is no difference. You will have to submit the same documentation as with others. Regardless of how punctual you have been with your payments, the verification process cannot be skipped.

Refinancing too frequently
The interest rates may be at their record lows, which is a good reason to refinance. That said, reducing interest rates might tempt many homeowners to refinance their mortgage frequently, even after having done so recently. It might look great on paper, but it can result in financial instability over time. You have to bear the closing costs, which come up to around 2-6 percent of the loan amount, every time you refinance your loan. So, the refinancing terms can be considered favorable only if you’re saving more than that due to the lower interest rates.