Pros and Cons of Refinancing Your Mortgage
2 minute read
November 11, 2016


With mortgage interest rates at historic lows, you might be wondering if you should refinance your mortgage. There are advantages to refinancing, but also some disadvantages. Let’s look at both.

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Cons of Refinancing Your Mortgage

Cost: Refinancing can be expensive, since closing costs usually are 3% to 6% of the loan’s principal, or several thousand dollars (though these costs can generally be rolled into the new mortgage so you do not have to pay them upfront). There may also be tax consequences of refinancing that could cost you in April.

Effort and time: Do you remember how much work your original mortgage was? A refinance may not require quite as much effort or time, but you will have to fill out paperwork, sign escrow documents, possibly have your home appraised, and so on.

Factors to Consider

How long you plan to stay in your home/How long it will take to recoup closing costs: The length of time you plan to keep your mortgage has a huge effect on how much money you will end up saving. As discussed above, you will have to pay closing costs to refinance your mortgage. You’ll want to make sure you keep your new mortgage at least long enough to recoup those costs, and the longer you plan to keep the mortgage, the greater your savings will be.

Whether a Home Equity Loan or Line of Credit might be a cheaper alternative: Because of the costs involved in refinancing a mortgage, you might find that a Home Equity Loan or Home Equity Line of Credit (HELOC) might be more cost-effective, especially if you are looking to refinance for short-term reasons, such as a temporary loss of income or to pay for a remodel.

Our advise is based on experience in the mortgage industry and we are dedicated to helping you achieve your goal of owning a home. We may receive compensation from partner banks when you view mortgage rates listed on our website.

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