When Should You Not Refinance Your Home

Many people look to refinancing as a method of reducing monthly payments, taking advantage of low interest rates, pulling equity out for repairs and remodels, or consolidating first and second mortgages. And while refinancing can be a wise move, it’s not always the right time to make that move. Here are some instances in which you should avoid refinancing.

If You Plan To Move Soon

When you refinance, you will have to pay closing costs on the new loan, which take away from the financial benefits. So, if you’re refinancing to lower your payment, consider how long you plan to stay in the house. If you’re planning to move in the near future, those closing costs may not be recouped before you move on.

Do the math quickly—how much are the closing costs and how much will the refinance save you each month? Add up the monthly savings until you reach the closing cost amount, and you’ll know how many months you have to stay in the house to break even. If you expect to move before that time, the refinance won’t save you money.

If Your Credit Needs Work

If your credit score is not as good as it could be, it’s probably not the time to refinance. It’s easy to get excited when you see low interest rates advertised, but remember that if your credit isn’t great you won’t qualify for those rates. Once you are into the process of refinancing and find out you’re being offered a higher interest rate, it can be hard to back out.

Keep an eye on your credit score and take steps to bring it up before you go in for a refinance. Waiting until your score is better means a much bigger savings in the long run.

If You Don’t Have Closing Costs Covered

Rolling closing costs in reduces the savings you will get from the refinance and adds thousands to the total due on your mortgage—a total that is being charged interest. It’s best to wait until you have enough cash to pay your closing costs before you refinance.

There are many other situations in which refinancing is not a good idea, and it’s always wise to take the time to do the math before you sign anything. Make sure you really are saving money in the long run, and that you’re not going to take away from equity you will need in the future.