In today's ever-fluid real estate market, it’s crucial that homeowners seek ways to optimize their financial situations. Mortgage refinancing has become a popular strategy to get more out of home ownership. Despite the benefits that can come with replacing an existing mortgage with a new one, there are still several common myths surrounding mortgage refinancing.
So, we’re going to debunk some of these misconceptions that may deter homeowners from considering mortgage refinancing. That way, if it’s an option for you at some point, you’ll have the clarity and insight you need to make the right decision.
Myth 1: Refinancing is Only Beneficial When Interest Rates Drop Significantly
While a larger rate reduction may make refinancing more appealing, even a modest decrease in interest rates can lead to substantial long-term savings. Additionally, maybe you want to pursue refinancing to switch from an adjustable-rate mortgage to a fixed-rate mortgage. Such a move can help provide more stability and predictability in your monthly payments.
Myth 2: It's too Late to Refinance if You’ve had a Mortgage for Several Years
Many homeowners believe that if they've had their mortgage for several years, they've missed the window for refinancing. This is not necessarily true. Depending on the current interest rates, your financial circumstances, and future plans, refinancing can still be a viable option for homeowners with existing mortgages.
By analyzing the potential savings and factoring in the costs associated with refinancing, you may find that it is financially advantageous to refinance, even after several years of homeownership.
Myth 3: Refinancing Involves Extensive Paperwork and Lengthy Processes
This is a common misconception that might deter homeowners from considering refinancing. While refinancing does involve some paperwork and processes, digital technology has streamlined the application and approval process significantly. Online applications, electronic document submissions, and automated verification processes have made refinancing more efficient and less cumbersome than it used to be.
Myth 4: Refinancing will Negatively Impact Your Credit Score
The potential effect on your credit during a refi is typically minimal and temporary. Your credit score may see a slight dip due to the inquiry and the new loan account, but as timely mortgage payments are made, the impact on the credit score diminishes.
Plus, by consolidating high-interest debt through refinancing, you may actually improve your overall credit utilization percentage and positively impact your credit score in the long run.
Myth 5: Refinancing Means Extending Your Loan Term
While some homeowners may choose to extend their loan term to reduce monthly payments, refinancing also provides the flexibility to switch to a shorter loan term. Shortening the loan term can help you pay off your mortgage faster and save significantly on interest payments over the life of the loan.
Myth 6: Refinancing is Only for Those in Financial Distress
Contrary to popular belief, refinancing is not exclusively for homeowners facing financial difficulties. Yes, it can be a valuable tool for those seeking relief from high mortgage payments or seeking to consolidate debt. However, refinancing can also be a strategic financial move for homeowners who want to capitalize on lower interest rates or access home equity for renovations.
Myth 7: Refinancing isn’t Worthwhile if You’re Planning to Move Soon
Some homeowners believe that if they plan to sell their home in the near future, it's not worth the effort to refinance. However, depending on the current interest rates and the amount of time before the anticipated move, refinancing can still yield savings that outweigh the associated costs.
Analyzing the breakeven point and considering potential savings during the remaining time in the home can help you make an informed decision regarding refinancing.
The Bottom Line
Refinancing your mortgage can offer a variety of potential benefits that can boost your financial situation. By dispelling these common mortgage refi myths, homeowners can gain a clearer understanding of the opportunities and advantages associated with refinancing.
Remember, it’s important for you to assess your individual situation before refinancing your mortgage. We also recommend working with a financial professional to help you determine whether refinancing is a viable and advantageous option for you.
Refinance with TwinStar
On the fence about refinancing your mortgage? We can help. Our team of home loan experts is ready to sit down with you and go over your options. Together, we can ensure that you make the most financial-savvy decision for your short- and long-term goals.*
For more information, visit our website, call us at 800.258.3115, or visit your local branch.
*All loans subject to credit approval. Rates, terms and conditions are subject to change and may vary based on creditworthiness, qualifications and collateral conditions. Mortgaged property must be located in Washington or Oregon state. Certain restrictions may apply. Contact a mortgage loan officer for more details. Equal housing opportunity lender. NMLS #530610