Mortgage Refinancing Myths Busted: What You Need to Know Now

When embarking on the process of mortgage refinancing, it helps to fully understand the potential benefits.

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Mortgage interest rates have risen significantly in recent months (think: around 7%) as the Federal Reserve seeks to cool the economy and fight inflation. After near-record mortgage rates helped boost a booming market during the pandemic, refinancing at a time like now may not seem logical.

But there is more circumstances when refinancing your mortgage can be helpful.

When you refinance, you take out a brand new mortgage. This loan is used to pay off your current loan, ideally replacing it with terms that better suit your financial needs and goals.

If you think this is something you could benefit from, contact a mortgage refinance expert now. They can answer all your questions and help you get started.

Mortgage Refinancing Myths You Should Know

When embarking on the process of mortgage refinancing, it helps to fully understand the potential benefits. Here are five common refinancing myths you should know.

This is not the right time to refinance.

Refinancing largely depends on your personal situation. For example, if you had less than ideal credit and were unable to secure record rates when you took out your existing mortgage, you may still want to do the math regarding a refi. Use the mortgage refinance calculator below to work out the numbers.

Check Freddie Mac’s weekly rates and compare them to yours. If you find a rate one whole percentage point less and the term is close to the remaining term of your current loan or shorter, most professionals would advise you to take it.

Even a half-point drop may be worth checking out, especially if your original home loan was large or had an adjustable rate. Switching from a fixed rate to a variable rate can bring stability when it comes to planning your monthly finances.

Refinancing is all about getting a lower rate.

There are many reasons people refinance other than the lure of a lower interest rate. Some are able to reduce the term of a loan, eliminating years of interest payments and reducing the total cost of the loan. Others take collect the value of their home and use the proceeds to pay off higher-interest debt, such as credit card or personal loan balances. This is an important consideration with consumer debt at an all time high. You may also be able to eliminate the cost of private mortgage insurance (PMI).

Be sure to do the math on the total cost of refinancing to be sure you’re saving money on monthly or total payments, depending on your financial goals and situation.

Speak to a mortgage refinance expert who can help you determine if refinancing is right for you.

Your current lender can offer you the best rate terms.

You may be comfortable with your bank or lender, but it pay to shop. Rates in recent years differed between lenders by up to 0.22%, according to Freddie Mac. Also take into account that the fees, points, PMI and closing costs everything adds up. Compare the estimates for the entire mortgage loan as well as the monthly payments.

Use the table below to shop around for lenders and rates to find the best one for your situation.

It’s a bad idea to use your home refinance to pay off other debts.

Credit card interest rates were around 16% last summer, according to Federal Reserve data. If you want to pay off this type of debt, your home value has gone up, and you are able to change or curb your card-spending habits, cash refinance can make sense. Ask yourself if you can handle a higher monthly mortgage payment as part of your overall financial situation.

Don’t forget to include everything figures such as estimated closing costs and total interest on the loan before making your decision.

You will lose some of the equity in your home.

This is only true if you take money out when you refinance. Home equity is the market value of the property minus any liens – like your current mortgage – attached to the property. Lowering the interest rate, dropping mortgage insurance, or refinancing with a shorter term mortgage will not change the overall equity.

The bottom line

Refinancing in general is not worth it when you already have a mortgage rate significantly lower than current rates. However, if you could save money, reduce the loan term, or both, it’s worth exploring further.

If you need money now, you can also sue a reverse mortgage. A reverse mortgage allows homeowners (age 62+) who have fully paid off or paid off most of their mortgage, to take some of the equity out of their home. This would be considered non-taxable income. It must be repaid, however, if the owner dies or chooses to sell the home. Still, it may be worth pursuing if the money is needed.

As always, it’s a good idea to consult a financial advisor or real estate professional to help you with the calculations. Experts recommend that you carefully consider your overall budget and financial situation, both monthly and longer term.


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