6 Mortgage Refinance Myths-Busted!

When mortgage rates fall, as they have this year, many homeowners decide to refinance their homes. The current refinancing frenzy has brought to light some common misconceptions. Here’s where we set the record straight—so you can build equity and lower your interest rate with confidence.

What is a mortgage refinance?

First, let’s explain the basic principles of refinancing a mortgage. When you refinance, you are replacing your current mortgage loan with a new mortgage loan. It’s typically done to change your loan terms—such as the interest rate or duration of financing—which could, in turn, lower your monthly payment or accelerate paying your loan in full. It may also have the potential to help you tap into your home’s equity to pay for home improvements or consolidate other debt.

Myth #1

If you’ve been denied a refinance in the past, you can’t ever be approved again. A previous refinance denial doesn’t mean this avenue is closed to you forever. Some applicants are turned down due to an inability to meet equity and credit score requirements. Based on recent market trends, however, many homeowners are quickly building equity. And, if you’ve been working on ways to raise your credit score, you may have experienced a significant increase. So, if your situation has changed for the better in either of these categories, now may be the best time to reapply!

Myth #2

Closing costs are expensive. Depending on the amount of your loan, the value of your property, and your lender, you may not have to pay any closing costs out of pocket—there may be alternatives. One option is to roll your closing costs into your new mortgage loan, which you can then pay off via your monthly payments. Another is to take a slightly higher rate in exchange for a lender credit to offset the closing costs. Discuss these options with your mortgage lender to see how they would affect your loan.

Myth #3

A minimum of 20% in home equity is required to refinance. The idea that you need at least 20% equity to refinance is a recommendation, not a rule. Although loans that allow less than 20% equity typically require mortgage insurance, you’re still eligible to apply for refinancing. Just be sure to do the math, confirming that, even with the addition of mortgage insurance, you’re still saving money over the life of the loan.

Myth #4

Refinancing won’t really save that much. Depending on the change in interest rate, refinancing could save a sizeable amount on interest. For example, lowering your current interest rate by even just half a point could save you tens of thousands of dollars over your full loan term. To find out what you can save, check today’s rates and try out our refinance calculator.

Myth #5

All lenders offer the same rates. The financial experts at Mountain America Credit Union always suggest shopping around for your mortgage—as well as other loans. Doing so means you not only get the chance to get a lower rate, but you have control to choose the best terms for your particular situation.

Myth #6

You need to be an expert to understand the process. So many people have the misconception that they need to know everything about the mortgage process to refinance. Although it may be helpful to refresh your memory before you meet with a lender, don’t let your fear of not knowing enough hold you back from achieving your financial dreams. Reach out to a financial advisor and feel free to ask any questions you have—it’s all a part of the process.