Are There Downsides to Refinancing My Mortgage?

Mortgage refinancing is not for everyone. There are potential downsides to mortgage refinancing that you should consider, including:

High Up-Front Fees

When you refinance your mortgage, you pay off your existing mortgage by taking out a brand new loan. With a brand new loan comes the repayment of closing costs. If your property has high closing costs, this can offset the money you’d save by acquiring a lower interest rate and/or better term.

Lengthy Process

Since refinancing involves issuing a brand new loan, the application process generally involves a lot of required documentation, as well as a credit check.

Resetting the Term

Mortgage refinancing often resets the term of a home loan. This means that you’re adding years to the life of your loan, which in turn increases the amount of overall interest you’ll pay (longer term = more accrued interest). For example, if a homeowner is 15 years into a 20-year mortgage term, and then refinances, he will likely extend his term by many years. If he had not refinanced, he would be only 5 years away from paying off his mortgage. So even though refinancing can mean a lower monthly mortgage payment, it could also cost more money over time through accrued interest. Keep in mind, however, that you can refinance your mortgage to reduce the length of your loan term if you want to pay it off more quickly.