Refinancing is a big decision. When done right, it can help you lower your monthly payments, shorten your loan term, access cash for other projects, or consolidate debt into a single, lower-interest payment.
However, it’s also a process with many variables, and if you don’t take time to analyze them carefully, it can lead to costly mistakes. Here are 4 of the most common refinancing mistakes and how to avoid them.
1. Not checking your credit score before applying
Just like when you bought your home, your credit is one of the first things lenders look at when evaluating your refinance application. Many people assume their score is fine because they’ve kept up with their mortgage, but a late payment on a credit card or loan can lower your score without you even noticing.
Tip: Check your credit score and full report before starting the process. If you see errors, dispute them and get them corrected. If your score has dropped, consider paying down debt or lowering balances to raise it over the next few months and qualify for better rates.
2. Not calculating the real cost of refinancing
Refinancing isn’t free. While many focus only on the new monthly payment, it’s important to factor in closing costs: admin fees, taxes, title insurance, and other expenses that can add up to thousands of dollars.
Tip: Ask your lender for the total cost of refinancing and calculate how long it will take to recover that investment through your monthly savings. If you’re planning to sell your home soon, refinancing might not be the best option.
3. Extending the loan term without considering the long-term impact
Reducing your monthly payment by refinancing into a longer term (like going back to a 30-year loan) might sound appealing now, but it could mean paying much more in interest over time.
Tip: Talk to a financial advisor about the total interest cost of different loan terms. See if you can refinance into a shorter or similar term to what you have left, while keeping your payment comfortable.
4. Doing a cash-out refinance without a clear plan
Getting extra money through a cash-out refinance can be very helpful — but it can also become a burden if used for non-essential expenses. Cash-out refinances work best when the money is used to add value, such as paying off high-interest debt, renovating your home, or investing in education.
Tip: Before refinancing, define exactly how you’ll use the money and how it will improve your finances or net worth. Avoid using it for consumer spending that won’t bring lasting value.
Refinancing your home isn’t just paperwork; it’s a financial strategy that can bring stability, liquidity, and long-term savings. The key is to be informed, plan ahead, and work with a team that guides you every step of the way.
At City Lending, we’re ready to support you through the process, answer your questions, and help you determine if now is the right time to refinance.