'Refinancing isn't free:' How to navigate refinancing a mortgage

When interest rates are low, homeowners may look to save money by refinancing, which means getting a new mortgage with a better term or interest rate to lower payments. (Source: Matt Frankel/Community Impact Newspaper)
When interest rates are low, homeowners may look to save money by refinancing, which means getting a new mortgage with a better term or interest rate to lower payments. (Source: Matt Frankel/Community Impact Newspaper)

When interest rates are low, homeowners may look to save money by refinancing, which means getting a new mortgage with a better term or interest rate to lower payments. (Source: Matt Frankel/Community Impact Newspaper)

Editor's note: This story previously referred to "private mortgage interest." The correct term is "private mortgage insurance."

When interest rates are low, homeowners may look to save money by refinancing, which means getting a new mortgage with a better term or interest rate to lower payments. Mortgage rates have steadily declined since November 2018, according to weekly data from Freddie Mac, also known as the Federal Home Loan Mortgage Corp.

Matt Frankel, a certified financial planner and mortgage analyst at The Ascent by Motley Fool—a general personal finance advice resource—shared advantages and disadvantages of the refinancing process.

What to consider

  • Is the current market rate at least 1% lower than your existing mortgage rate?

  • Are you planning to stay in the same home for at least five more years?


How to start


  • Always consult multiple lenders to find the best mortgage rate. Start with your current lender.

  • Multiple inquiries from mortgage lenders affect an individual’s credit score no more than a single inquiry, Frankel said


The ins and outs of refinancing

Pros

  • Can lower monthly mortgage payments

  • May eliminate private mortgage insurance


Cons


  • Can be costly, as homeowners must pay lender and closing fees again

  • Paperwork


Another option


A homeowner can also choose cash-out refinancing, in which an existing mortgage is replaced with a new home loan totaling more than the remaining debt. The difference is paid in cash and can be helpful in paying other debts, as a mortgage is often the lowest-interest loan available, Frankel said.
By Anna Lotz

Editor, Tomball/Magnolia & Conroe/Montgomery

Anna joined Community Impact Newspaper as a reporter in May 2016 after graduating with a degree in journalism from Cedarville University in Cedarville, Ohio. In July 2017, she transitioned to editor for the Tomball/Magnolia edition. She began covering the communities of Conroe and Montgomery as well in 2020. Anna covers education, local government, transportation, business, real estate development and nonprofits in these communities. Prior to CI, Anna served as editor-in-chief of Cedars, interned with the National Journalism Center in Washington, D.C., and spent time writing for the Springfield News-Sun and Xenia Daily Gazette.



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