Want to take advantage of current interest rates to apply for refinancing? Before filling out the form, be sure to avoid these two common mistakes!

With mortgage rates dropping significantly recently and now well below their 2023 peak, now is indeed a good time for many people who bought a home in the past few years to consider refinancing. But before you fill out an application, there are a few things to be aware of.

Here are two common mistakes and why you should avoid them 👇

1. Don’t accept the first loan someone offers you

One of the most common mistakes, whether buying a home or refinancing, is to apply to just one lender and then accept whatever rate and terms they offer. You should never do this under any circumstances. Understand that different lenders have different loan approval and underwriting methods. So it’s common to shop around and apply to three or four institutions and get different rates.

Let’s say you have a $400,000 loan that you’re considering refinancing. One lender is offering a 6.375% interest rate, while another is offering a 6.25% interest rate. The loan origination fees for both lenders are similar. While the two rates sound very close, the lower rate will save you $11,520 in interest over the 30-year loan term.

Applying to several different lenders may take hours, but it can pay off well and won’t hurt your credit score. There’s a special rule in the FICO score formula that encourages comparisons of rates.

As long as all of your loan applications occur within a normal shopping period (defined as two weeks in the FICO formula), it will be considered a single credit check and will not affect your credit score.

2. If refinancing is in your favor, don’t delay

Most experts think interest rates will fall significantly in the coming years, but there’s no way to pinpoint exactly when or how much they’ll fall. In general, it’s usually unwise to try to predict where interest rates will go. After all, at the beginning of 2022, most experts were predicting that 30-year loan rates would remain below 4% for the foreseeable future.

Let’s say you bought a house last year with a 30-year loan at 7.5%. If you could get 6.5% today, even with origination fees, you’d consider it. But the MBA predicts that by the end of 2025, the 30-year rate will drop further to 6%.

Should we wait? The answer is not necessarily. Not only is there no guarantee that you will get a 6% interest rate next year, but you will also have to continue to pay back the current high interest rate during this period. There is no rule that says you can only refinance once, and some people refinanced twice or even three times when interest rates plummeted in 2020 and 2021.

Given the predictions of rate cuts starting later this year, loan rates recently fell to their lowest level in 15 months. As of the latest data, the average rate on a 30-year loan was 6.49%, well below the peak of nearly 8% in 2023. Simply put, if you plan to stay in your home long enough that the savings from refinancing outweigh the costs of refinancing, now is the time to think carefully about it.