Today’s lowest mortgage rates of all time have set off a stampede among homeowners who’ve realized they can refinance their loans and cut down their monthly payments, often by hundreds of dollars.
But personal finance expert Suze Orman says anyone thinking of joining the rush to refi should pause and take a deep breath — because people often bungle it.
“It makes me so crazy how most homeowners make a huge mistake when they refinance,” says the author and TV personality.
Orman says the blunder can easily saddle you with much higher interest costs, even if you manage to land an enviable mortgage rate.
‘So very wrong’
Mortgage rates have plunged to record lows in 2020 as the coronavirus crisis has rattled investors and caused the Fed to slash interest rates nearly to zero to prop up the economy.
Low rates prompted nearly 1.7 million homeowners to refinance during this year’s April-through-June quarter alone — more than double the number who took out fresh loans during the same period in 2019, according to Attom Data Solutions.
Orman says the costly mistake most of those recent refinancers probably made was to automatically reach for another 30-year mortgage, even if they’d been paying down an existing 30-year loan for several years.
“This is so very wrong,” she writes, in her blog.
The consumer guru says suppose you’d been paying down your original loan for 14 years, then took out a new 30-year mortgage. “Sure, the new mortgage is at a lower interest rate, but you just extended your mortgage-payment on this home to 44 years!” she says.