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The Truth About Refinancing Your Mortgage

Knowing the truth about refinancing your mortgage will help you prepare, and can help you save money along the way.

Don’t rush into a commitment until you know the truth about refinancing your mortgage. It can be exciting to see that mortgage rates have gone down. But even if you get a lower mortgage rate, you could wind up spending more money through refinancing than you would have if you just stuck with your original mortgage.

The truth about refinancing your mortgage is that it can be trickier than it seems, and you need to analyze it with more depth than just looking at the mortgage rate. While mortgage rates are important, especially over your loan’s lifetime, the total refinancing package, your goals, your financial position, and your plans need consideration. Plus, you’ll need to go through the process of qualifying for a new mortgage.

Let’s look into some quick things you need to address before deciding on refinancing your home.


The truth about refinancing your mortgage: 4 tips to realize

1. Equity in your home

Having equity in your home is one thing, but understanding the equity in your home is another. Many people think about the money they put into their homes and believe they know their equity. Home values change, and that can have an impact on your equity.

Plus, refinancing may not even be an option if you don’t have enough equity in your home already. Be certain you understand how much equity you have in your home and what that means for your refinancing options.

2. Refinancing costs

If you don’t take the costs of refinancing into account, you’re making a roll of the dice on whether you’ll save money. With all costs considered, refinancing can be as much as 3-6% of the actual loan amount.

That is only a few percentage points, but it can make a huge difference, especially if you have a larger loan. There is no way you can understand the value of refinancing unless you have a clear picture of your refinancing costs.

3. Rates and terms

Refinancing isn’t just about getting a lower rate. You need to make sure your mortgage works for your situation and your goals. Are you planning on only being in your house for a short time? If so, having a longer loan with smaller payments could be advantageous in the short term.

When you are refinancing, think about how long you want that loan to last and why. If you’re only paying attention to the rate, you’re missing a lot in planning your overall financial picture.

4. Where do you break even?

We talked about your refinancing costs earlier. So, you know you are already starting your refinance by spending money. You’re behind. The only way refinancing will be worth your time is if there is a clear and definable point where you will make that money back and begin saving money from your original loan.

Know when that break-even point is, or else, again, you are just making a roll of the dice that your lower mortgage rate means you’re saving money. As a general rule, if you plan on staying in your home for a while, refinancing makes the most sense if you’re saving .75% or more on your interest rate.

The truth about refinancing your mortgage that many people don’t understand

Since many people don’t go through the numbers and figure all of these things out, people often find themselves spending more money through refinancing. This can actually happen over the life of a loan or before the loan is complete.

If you sell your home before you hit your break-even point, all you did was spend time and money on a refinance that didn’t do anything for you. Understand what you’re getting involved with before you refinance your home, and it can help you keep a lot of money in your pocket.

Why are you interested in refinancing, and do you now have a better understanding of the truth about refinancing your mortgage? How long do you plan to be in your home?


Nancy Zambell has spent 30 years educating and helping individual investors navigate the minefields of the financial industry. She has created and/or written numerous investment publications, including UnDiscovered Stocks, UnTapped Opportunities, and Nancy Zambell’s Buried Treasures under $10. Nancy has worked with for many years as an editor and interviewer for their on-site video studios.