Atlanta Mortgage Loans – FHA and VA Loans in Atlanta | Myths about refinance – learn the truth about refinancingAtlanta Mortgage Loans – FHA and VA Loans in Atlanta
Contact | 770.897.LOAN (5626)


It seems like everybody is refinancing. If you haven’t started the process, check out these seven myths about refinancing…

Refinancing mistakes can cost you a lot of time and money. So, it’s better to avoid them and stay away from mortgage problems that could land you in foreclosure.

1. Refinancing too frequently

Refinancing is a great way to save; but each time you refinance, you incur closing costs and mortgage refinance fees. It takes time to break even on these expenses. If you refinance too often, you’ll never reap significant benefits and savings. Calculate how long it will take to begin realizing net savings, and avoid the temptation to refinance your loan prematurely.

2. Borrowing too much

If you have good credit, lenders will generally offer you more money than you need. But each time you borrow, you wind up paying interest on the loan balance. Decide how much you truly need and can afford to borrow.

Then, avoid the urge to increase the size of your refinance loan beyond that amount. By avoiding these common pitfalls you can increase your equity, decrease your expenses, and ensure that your plan to save money is a good one. As a result, your mortgage refinance will pay for itself and generate positive cash flow over time.

3. Unaware of the Break-Even period

When you are trying to refinance, you’ll have to pay closing costs that can be offset by your savings due to the lower interest rate. The time when your savings fully offset the costs of the new loan is the break-even period.

You need to calculate the break-even period, so that you can occupy the property until then and recoup your costs. This is helpful when you refinance with a similar loan in order to take advantage of a lower interest rate and monthly payments.

4. Taking cash from a HELOC (Home Equity Line of Credit)

Lenders often require that homeowners wait at least 6 months after taking money out of a home equity line of credit, before refinancing.

Moreover, if you withdraw money from your HELOC for anything except home repairs and then refinance, lenders will consider the first transaction as a “cash-out”. This is because you’ve already accessed your line of credit. So, it’s a good move not to pull out equity prior to a refinance.

5. Not appreciating your motive for refinancing

A reduction in interest is one of the reasons for refinancing, but legitimate reasons like home improvements or debt consolidation or major purchases would validate your purpose. There are other ways of getting interest payments deducted, like on tax returns. Consult with your tax attorney or an accountant.

6. Extra-Long Loan Term

Another mistake is to sign a mortgage refinancing agreement that significantly extends the duration of your loan. While that may lower your monthly payments, it will also cost you more money in interest because you’re taking so much longer to repay the principal. However, if the refinance lowers your interest rate as well, that can offset the additional interest which results from a longer term.

Borrowers who are need low monthly payments for the short-term may consider getting a balloon mortgage, which starts with low initial payments (for 3 to 7 years) after which the remaining balance is due or the borrowerrefinances.

7. Moving too Soon

A mortgage refinancing mistake that some borrowers make is refinancing their loan and then moving after a few years. Since refinancing means you’re replacing your old home loan with a new one, you will have to pay fees for opening that new loan ― fees may include mortgage application fee, appraisal fee, and closing costs.

Once these costs are factored in, even if you’ve refinanced to a lower mortgage rate, it will probably still take several years before you break even on the loan. Mortgage refinancing says that you’re making a commitment to invest in your home, and you will have to stay there for a good amount of time in order to gain the full financial benefits of your refinance.