When NOT to refinance your home

When NOT to refinance your home

There are times when the mortgage rates look incredibly appetizing and it seem as if everyone is jumping on the refinance bandwagon. While refinancing when the interest rates are very low may look like a good idea, not everyone would benefit from refinancing their home. Homeowners who already have a lot of debt, an existing a second mortgage or plan on moving in the future may actually find themselves paying more by refinancing at a lower rate than staying with their current mortgage.

How much equity do you currently have in your property?

One of the first things to figure out is if there is enough equity already in the property. It makes little sense to refinance if you have already borrowed 90% or more of your homes value in home equity loans or second mortgages. It’s ideal to borrow less than 80% of that value of your home if you plan on refinancing. By borrowing less than 80% of the properties value you won’t have to pay a PMI or private mortgage insurance.

How long have you been paying?

If you have been paying your mortgage for a long time already then refinancing at this point might cost you a lot more money in interest even though your interest rate itself will be much lower than your existing interest rate. If you’re pretty far along in your loan then most of what you are paying at this point is principle so refinancing would not be a good idea.


Check you credit.

Make sure your credit score is better or at least the same as it was when you first took out your mortgage otherwise you probably still won’t qualify for a low enough rate to make refinancing worthwhile. Many people rack up debt on their credit cards and then proceed to take out other lines of credit after buying a new home. This behavior itself can actually lower your credit score even when you pay all of these bills on time each month.

How long do you plan on staying in your home?

As a general rule you should only consider refinancing if you plan on staying in your home for more than 5 additional years. If you aren’t planning on staying put for at least that long then you’re probably not going to recoup the costs or refinancing.

While there are many good reasons for someone to refinance when the rates are at an all-time low, refinancing is not for everyone. Look at all the variables when deciding whether or not refinancing would benefit you and make sure to run the numbers yourself. There are tons of mortgage refinancing calculators available on the web that can help you figure out how long it will take for the savings you will get from your new loan will offset the cost of refinancing.

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