Drawbacks of mortgage refinancing
Refinancing a mortgage loan does not always make financial sense. Some homeowners may end up paying more money in fees and interest. Here are a few reasons refinancing might not make sense for you.
- You will pay closing costs again: Underwriting a mortgage loan isn’t cheap. Similar to your home purchase, expect to pay 2% to 6% of your loan amount in closing costs
- Borrowing costs can increase: Your new mortgage may result in paying even more in interest. For example, if you refinance your 30-year loan into a new 30-year loan, you will likely pay more interest than if you had not extended your loan repayment term
- Your interest rate could increase: If rates in general have risen since you took out your original home loan, you may not be able to refinance into a lower rate. It usually does not make sense to refinance if your interest rate will go up
Keep in mind that a refinance is not the only option. If you want to tap home equity, a Home Equity Loan or Home Equity Line of Credit (HELOC) could help you cash out without refinancing your existing mortgage. Work with your loan officer closely to determine which loan type is best for your unique situation.
