Six home refinancing myths you shouldn’t believe
It makes sense to refinance a home when you can potentially save thousands of dollars or lower your monthly payments. There are some myths, however, that have some people believing a refinance is not for them. Let’s dispel those myths so you have all the facts to make the best decision:
I saw the Fed interest rate went up. I missed my opportunity. Fed rates do not directly affect mortgage rates, but typically when Fed rates go up, mortgage rates will follow. Although Fed rates have started to climb, you have not lost your window of opportunity to refinance. The best time to refinance is while the rates are low. More important in determining a successful refinance is the breakeven point – which is your closing costs divided by what the refinance saves you monthly. If your closing costs are $3,000 and you can save $150 a month, the breakeven point is 20 months. If you stay in the house past the breakeven point, you’ll save money with a refinance.
The closing costs are too much. I won’t be able to afford them. You could pay the closing costs up front, but our bank might also let you roll your closing costs into the new loan, depending on the ratio of your loan amount to your home’s value. If you qualify, there’s no out-of-pocket cost to refinance.
I’m years into paying down my mortgage. I don’t want to refinance into another 30-year loan. You don’t have to. We can restructure the loan to any length between 10 and 30 years, making a refinance a flexible way to shorten your term or take advantage of a lower interest rate.
Refinancing is only for changing my loan term or rate. A popular option is a cash-out refinance. You can tap into your home’s equity to fund any number of things, including:
- An addition, garage or home remodel
- College tuition and expenses
- Wedding costs
- A once-in-a-lifetime trip
- Debt consolidation
- Unexpected or high medical expenses
- A vehicle purchase
A refinance might also be a way to add or remove someone from your loan in the event of a marriage or divorce. It also applies if a coborrower signed on the original loan and you’ve established enough credit history to now take full responsibility for it.
It will take too long. It’s too much work. The process typically takes 30 days for the appraisal, insurance title search, loan underwriter review and document follow-up. Our bank tries to collect as many required documents up front to ensure a smooth process.
I was turned down the last time I tried to refinance. It will probably happen again. Your situation might have changed since the last time you applied. Maybe your credit score improved since you completed an application. When life changes, it pays to check again.
When you remove the myths, there are fewer barriers to refinancing and perhaps more reasons to refinance than you might think. Talk to any of our local lenders, who can answer your refinancing questions and show you how to make the most of your home’s value.