When it comes to refinancing a mortgage, too many homeowners let a number of common myths scare them away from the process. The internet is chock full of half-truths about this heavily debated subject. Below, we wade through some of the more prevalent myths in an attempt to shed light on the truth about home mortgage refinancing.
Here are some commonly held myths and the real answers behind them:
1. This is a bad time to refinance a home mortgage
Rates were historically low for several years so many people fear they won’t be able to get a rate better than the one they currently have. However, there can still be other reasons for refinancing without losing your low rate: You can take cash out, combine a first and second, get rid of private mortgage (PMI), change your terms and/or change from an adjustable to a fixed rate or the reverse. Perhaps when you bought your home, you didn’t qualify for the lowest-possible rate but now you might? You may have a better loan-to-value (LTV) ratio than you did when you first bought if you’ve been in your home a few years. Maybe you have a higher credit score or better income now as well. Any improvement to your financial situation could help you qualify for the lower rate currently available.
2. You were turned down for a refi in the past, so you will be again
If you were turned down previously, hopefully you asked for the reasons why. If it was due to lack of equity or your credit wasn’t strong enough, both of those things may have changed now that time has passed (and ideally, you have been working to improve your credit). American homeowners are gaining equity at a strong pace now, so the issue you might have had just a year or two ago could be reversed now. Also, if you did not qualify for the Home Affordable Refinance Program (HARP) in the past, you might now, as the program and its requirements have changed over the years. It is slated to end at the end of 2018, so don’t wait to check to see if you qualify now.
3. Refinancing will cause you to lose equity or slow down the accrual of it
Homeowners won't lose equity through refinancing unless they opt for a loan that adds to the loan principal (a cash-out refi or combining a first and second mortgage). Other than closing costs, your principal shouldn’t increase and your home equity should not decline. If you do take out money to do home improvements, you will hopefully help increase equity as you improve the value of your home. Although, it might take some time for you to see a return on investment for the improvements you’ve made, in the meantime, you have a more livable home.
4. Closing costs will be have to be paid all over again
There are some programs out there that could offset your closing costs but they often come with higher interest rates. Paying the closing costs is often the better way to go.
5. Not enough time has gone by since your last refi
It’s not uncommon for people to think that there are mortgage contracts or federal laws that bar them from refinancing multiple times. The truth is that investors actually anticipate that borrowers will attempt to refinance as rates decrease. Also, with the rise of equity, there is more incentive to draw upon that now, even if you refinanced for a straight rate reduction in the not too distant past.
To learn more about your refinancing options, speak with a Licensing Lending Officer with expert knowledge by calling (888) 983-3240 for more information.
Updated March 29, 2018