Refinancing your home may save you money on your monthly payments or your total interest paid, but it may not be a smart financial move if your credit score has seen a dip, if you’re planning to move soon, or if you aren’t able to pay the closing costs upfront.

If you refinance your home, you’re essentially taking out a new loan to pay off your original mortgage loan. This can come with its benefits, like a lower monthly payment or a shorter loan repayment period, but not everyone who considers refinancing will necessarily reap those benefits.

Before you decide to refinance your mortgage, you’ll need to consider whether it will be financially beneficial or may actually set you back. To help you figure it out,

Jerry

, the insurance

super app

, is here with reasons not to refinance your home, things to consider before making the refinance decision, and ways that refinancing your mortgage affects your

home insurance

RECOMMENDED

Compare auto insurance policies

No spam or unwanted phone calls · No long forms

ZIP Code

Find insurance savings

5 reasons not to refinance your home

While there are some advantages (like lower monthly payments or lower interest rates), refinancing your home can be a major burden. It’s a similar process to applying for an initial loan, meaning you’ll need to meet lending requirements and be prepared to either pay upfront closing costs or have the extra expense added to your refinance loan—all of which can be a major hassle.

Just like taking out a mortgage loan, refinancing your mortgage is a big investment and should be weighed as such. Before committing to it, consider these reasons why not to refinance your home.

1. You’re planning to move

You may not see any benefit from refinancing your mortgage if you plan to move soon. When you refinance, you enter a waiting period until you reach the break-even point of your new loan. This is the point when you recover the closing costs from the new loan and are now just paying on the loan balance and interest.

Everyone’s waiting period is different depending on factors like the agreed-upon loan term and interest rate, but it can fall anywhere between 36 to 72 months.

If you move before you reach the break-even point, the potential savings you could see from refinancing your current mortgage won’t be very significant, if you see them at all.

For example, let’s say you refinance for a lower interest rate but your closing costs are high enough that you’ll have a waiting period of 40 months. This means you won’t see any of the savings from your new interest rate for 40 months, so refinancing may cost you money.

MORE:

Does refinancing a car hurt your credit score?

2. You can’t afford the closing costs

Any time you get any type of mortgage loan, there are closing costs. For an initial mortgage loan, your closing costs will typically be 3%-6% of the loan amount. The closing costs for refinancing loans are typically between 2%-5% of the loan amount.

If you can’t afford the closing costs outright you could add them to your loan balance. However, this means adding thousands of dollars to the balance and additional interest for which you’re responsible. This could make refinancing a much more expensive endeavor.

3. Your credit score has dipped

If your credit score has dipped since applying for your original mortgage loan, you’ll likely be offered a worse interest refinance rate. Typically, people apply for a refinancing loan to gain better rates, lower payments, or some other financial benefit, so locking into a worse rate doesn’t make much sense.

MORE: Is pay-as-you-go insurance right for you?

4. You want access to your home’s equity

In some cases, you may be considering a cash-out refinance, which allows you to convert the equity you have in your home into cash. This can be beneficial if you’re looking to finance larger expenses, like home renovations or business start-up fees.

However, taking personal loans from your home’s equity may do more harm than good. Obviously, your accumulated equity will drop, but you also run the risk of losing your home unless you’re certain you can afford your mortgage payments down the line.

5. The costs outweigh the savings

The lower monthly payments of a refinanced loan may seem attractive, but if you’re refinanced loan repayment period is as long as your initial one, you’ll be essentially paying the interest twice over. And with interest rates on the rise, you may be paying even more than that.

On the other hand, if you choose to refinance for a shorter period to reduce overall interest and length of time spent paying off the loan, you could be looking at financial instability from higher monthly payments.

If the total amount of savings you’ll see doesn’t significantly outweigh the costs of refinancing your mortgage, consider it a reason why not to refinance your home.

MORE:

Why should I pay car insurance in full instead of monthly payments?

Let Jerry find you the best homeowners insurance policy for your needs

* checking your rate won’t affect your credit score

Shop Now

* checking your rate won’t affect your credit score

Things to consider before refinancing your home

Refinancing a mortgage loan will not be beneficial for everyone, so important to consider your financial position before deciding to refinance. Here are some factors to think about.

Your eligibility

Handle this one first. There’s no point in seriously pursuing a refinance loan if you aren’t eligible for one in the first place.

Both first-time mortgage loans and refinanced mortgage loans require certain criteria to be met before you are approved. For a first mortgage, potential lenders will look at factors like your income, the type of property you want to finance, your credit score, and your assets.

For a refinance loan, your lender will consider:

How you’ve been managing your current mortgage payments

The amount of equity you have in your home, which typically must be at least 3% higher than your mortgage balance

Your credit score. Depending on your lender, a score of 580 to 680 may be required

Your debt-to-income ratio

Your ability to pay the closing costs upfront

Your credit score

Most conventional loans require a 620 or above credit score, but it will vary depending on your lender and loan program. If your credit score is below what is required, your refinance request may get denied or you may be sacked with higher rates.

MORE:

What is a good credit score for a car loan?

The expenses

While the potential savings can be enticing, you should consider all the expenses of refinancing your mortgage. Closing costs for a refinance loan are generally between 2% and 5% of the total loan amount and cover things like appraisal fees, title fees, and pre-paid taxes.

It may be best to wait to refinance your mortgage until you can fund the closing costs upfront and won’t have to roll them into your loan total, which would increase the length of the term or the cost of your monthly payments.

The loan term

Think about what you’re hoping to gain from refinancing your mortgage and compare that with the proposed loan term.

Are you looking to shorten the loan term and pay less in overall interest? Or, do you wish to have less expensive monthly payments with a longer loan term? If a refinanced loan doesn’t meet your needs, it may not be worth it.

How refinancing affects your home insurance

Insurance companies keep records of your insurance score, which is affected by refinancing. If you refinance your home and thus alter your insurance score, insurance companies could decide you’re a bigger financial risk and raise your rates or expect you to increase your coverage.

If you’re unhappy with how your current

home insurance

provider handles your situation, consider shopping around for a new insurance company! If you’re hesitant to switch home insurance plans or providers because you’re worried about the work involved, don’t be.

Jerry

does all the paperwork for you and even helps cancel your old policy.

Just download the app, answer a few questions, then set your insurance updates to autopilot.

Super app

Jerry will even send you new quotes every six months, so you always have the best policy at the right price.

“
Jerry
handles everything from finding quotes to signing on new policies right in the app. No more filling out hundreds of forms! Thank you, Jerry, for helping my move to a new state feel hassle-free.” —Dolores T.

RECOMMENDED

Put your insurance shopping on auto-pilot NOW and save money automatically every 6 months

New quotes when prices drop automatically

30 seconds to sign up

No phone calls or people bothering you

100% FREE

Get started now - select insurance you want to put on auto-pilot:

Car

Car + Home

Car + Renters

Rated 4.7 based on over 600 reviews

What does it mean to refinance your home?

Refinancing your home means that you take out a new loan to “pay off” your original mortgage loan. You essentially trade the old loan for a new one to secure a better interest rate, lower monthly payments, or a shorter repayment period.

Is there a reason to not refinance your home?

Every individual’s situation is different and the choice to refinance your mortgage loan depends on those situation’s details. However, you may have reason to not refinance your home if you’re planning to move house soon, you can’t afford the closing costs upfront, your credit score is lower than when you applied for your initial mortgage loan, you’ll be taking from your home’s equity, or the overall costs outweigh the overall savings.

Save an average of 18% by bundling your home and auto insurance

Bundle your home and auto insurance with Jerry and save!

Try Jerry