Refinancing a home mortgage can save you money on your monthly payments and interest payments throughout the life of your loan. Particularly for those homeowners who switch from an adjustable-rate mortgage to a long-term fixed mortgage with a lower rate, there is much money to be saved with the refinancing process. However, some people are not good candidates for mortgage refinancing and should be aware of the pitfalls of such action.

Who Shouldn't Refinance?

People with little equity – If you don’t have any equity in your home or you have a home equity line of credit (HELOC) that exceeds more than 80% of your home’s value, you simply won’t get good enough rates to make refinancing worth your time or money. PMI (Private Mortgage Insurance) may also be required, which would just raise the cost of re-fi even more.

People who plan to move soon – If you’re not staying in your home for more than another year or two, there is really no point in refinancing. The cost of re-fi could take up to three years to recoup, so you could be still paying for it by the time you move.

People with credit card debt – There is no reason to turn short-term debt (credit cards) into long-term debt (mortgage). Sure, the lower interest rate sounds great, but stretched out over 30 years, you could end up paying much more for your credit card debt than if you have even a double-digit interest rate on your card now. You’re also hedging your house against this debt; so if you default, collectors could take your home and you don’t want to ever put yourself or your family in that position.

People who’ve paid off more than half of their mortgages – If you’re halfway (or more) to the finish line, most experts recommend that you stay the course instead of jumping ship. This is because mortgages are traditionally set up so that you pay off the interest first. Once you’re past the halfway mark, you’re just paying off principal. To start a new loan would be to start that process all over.

People whose credit is worse now than when they purchased – Because of your FICO score, you simply won’t get the lowest rates, so it won’t likely be worth the effort.

Use the mortgage loan calculator at to find out if a re-fi is ideal for your situation. If the costs outweigh the benefits, then you should wait until you can get a better rate or have built up more equity in your home.

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