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8 Refinancing Myths

If you’re reading this, you’re likely researching whether it’s a good time to refinance your home loan. And if you’re researching whether it’s a good time to refinance your home loan, you’ve likely read a lot of articles on the topic. And if you’ve read a lot of refinancing articles, we know you’ve seen some conflicting info on best practices.

We’re here to set the record straight on these eight refinancing myths.

1. Not enough time has passed since your last refinance.

There’s no legal limit on how long you have to wait after refinancing to do so again, though some lenders will want to wait at least six months before working with you.

But how long you should wait is more important than how long you have to wait. Between closing costs and the potential of prepayment penalties, refinancing again so soon is unlikely to be worth it unless your credit score has sharply increased or interest rates have significantly dropped. Do the math with your lender before deciding if it’s worth it.

2. You have to reset your loan term.

A potential drawback for those who have been paying off their mortgage for a number of years is starting over on a 15- or 30-year term. While refinancing may move you into a loan with lower monthly payments and a better interest rate, resetting the clock on how long it takes to own your home outright is understandably a drawback for some.

However, here at Minute Mortgage, we can get you into a loan with custom terms. Want to refinance a 30-year mortgage that you’ve been paying down for seven years? Talk to us about refinancing into a custom 23-year term in that case.

3. You should always refinance if you can get a lower interest rate or monthly payment.

Always do the math. There are a number of situations where refinancing just isn’t worth it at the time, even if you qualify for a lower rate and lower monthly payments.

Here are a couple examples:

  • You plan to sell your home before hitting your break-even point: That’s the point at which your savings from a lower mortgage rate exceed the costs of refinancing.
  • You’re financially strong enough to pay more each month after refinancing to a shorter term at a lower interest rate: This is a case where we may recommend you pay more each month. This plan would allow you to save tens of thousands of dollars in interest over the years and own your home outright years earlier.

4. You need 20% equity to refinance.

While this isn’t true, you may have to pay mortgage insurance if you’ve got less than 20% equity. Keep this in mind as you decide whether to refinance. Though you may be able to get into a better rate, the cost of mortgage insurance may make refinancing not worth the cost.

5. Your current lender can offer you the best rates.

We say shop ‘til you drop…your interest rate.

Terrible jokes aside, we really do recommend shopping around. There’s no guarantee your current lender can offer the best deal on a refinanced mortgage and you’re selling yourself short if you don’t see what other lenders can offer.

6. You’ll lose your equity.

You can, but not always. Your equity is only lowered when you add to the principal of your loan, which you do with a cash-out refinance. Refinancing to lower your interest rate or shorten your loan’s term does not cut into your equity.

7. You shouldn’t consolidate credit card debt with a cash-out refinance.

This isn’t necessarily a myth. But whether it’s a good idea is dependent on your personal habits and financial situation.

Consolidating high-interest-rate credit card debt into a low-interest cash-out refinance makes financial sense on the surface. But there are things to keep in mind.

  • You’re moving unsecured debt to secured debt. In short, you can lose your home if you don’t make mortgage payments. You don’t lose your home if you fall behind on credit card payments.
  • It can be tempting to rack up credit card debt all over again after they’re paid off. You have to trust you won’t do that to yourself or you’ll be in more trouble than you were before refinancing.

8. Applications require a lot of documents.

Maybe with traditional lenders they do, but not here at Minute Mortgage. Submitting documents is easy, whether you apply via our website or app. Just snap a pic and submit. We make it easy like that.

The exact amount of needed documents will vary by applicant, but we won’t make you send us anything we don’t truly need.


Got more questions about anything mortgage related?

Contact our team of happy, helpful mortgage experts.

Article Summary

6 Minute read

Sort through the myths and not-quite-truths of refinancing so you can borrow smarter!

Minute Mortgage