5 Mistakes to Avoid When Refinancing Your Home

Refinancing your home can be one of the smartest financial moves you make — if you do it right. By lowering your interest rate, adjusting your loan term, or tapping into your equity, refinancing has the potential to save you thousands of dollars over the life of your loan.

But refinancing isn’t always straightforward. Many homeowners jump in without understanding the process, the costs, or the long-term impact. The result? Missed savings, higher monthly payments, or even loan terms that set them back instead of moving them forward.

Here are five of the most common refinancing mistakes — and how to avoid them.

1. Focusing Only on the Interest Rate

Yes, interest rate is important. It directly affects your monthly payment and how much you’ll pay over the life of your loan. But it’s not the only thing that matters.

Here’s what many borrowers miss:

A lower rate doesn’t always mean lower costs if fees and closing costs are high
Shortening your loan term may raise your payment but save you money in total interest
Extending your loan resets the clock — you may pay more in the long run

Tip: Look at the full Loan Estimate. Compare the annual percentage rate (APR), which includes fees. Calculate your total cost over time — not just monthly savings.

2. Ignoring the Break-Even Point

Every refinance comes with upfront costs — usually 2%–5% of your loan amount. That means it takes time before you “break even” and start saving real money.

Here’s how to calculate it: Divide your total closing costs by your monthly savings.

For example, if refinancing costs $5,000 and saves you $200/month, it’ll take 25 months to break even. If you plan to sell or move before then, it may not be worth it.

Tip: If your break-even point is more than 3–5 years away, think twice — especially if you may move or upgrade homes soon.

3. Rolling Closing Costs Into the Loan Without Thinking It Through

It’s tempting to roll the cost of refinancing into your new mortgage. After all, who wants to pay thousands out of pocket?

But doing so increases your loan balance — and the amount of interest you’ll pay over time. You’re essentially financing your closing costs, which can be expensive in the long run.

Tip: If you can afford to pay the fees upfront, it’s usually smarter. If not, make sure you understand how much it adds to your total cost — and compare lenders carefully.

4. Resetting the Loan Term Without Realizing the Impact

Let’s say you’re 7 years into a 30-year mortgage. If you refinance into a new 30-year loan, you’re adding those 7 years back — even if the payment is lower.

This may make sense if you’re struggling with cash flow, but it also means you could pay much more in interest over time.

Tip: Ask your lender about refinancing into a shorter term, like a 20- or 15-year loan. You’ll pay it off faster and save more — and rates on shorter loans are usually lower.

5. Not Shopping Around

One of the biggest refinance mistakes is going with the first lender you talk to. Even a small difference in rate or fees can add up to thousands of dollars.

Did you know? Studies show that getting quotes from 3–5 lenders can save borrowers an average of $1,500 over the life of the loan.

Tip: Compare not just interest rates, but also:

Origination fees
Discount points
Third-party costs (like title and appraisal)
Closing timelines and customer service

It’s also smart to compare lenders who specialize in different things — like local banks, credit unions, online lenders, and mortgage brokers.

Bonus Mistake: Refinancing for the Wrong Reasons

Some homeowners refinance just because they can — not because it aligns with their goals. For example, refinancing to pull cash out for a vacation or car might feel good now, but it increases your loan balance and monthly payment.

Other borrowers refinance too often, stacking fees and restarting their term over and over. Unless there’s a meaningful benefit — like lowering your rate, shortening your term, or consolidating debt — refinancing might not be the right move.

Tip: Always ask: “How does this refinance help me financially in the short and long term?”

How to Refinance the Right Way

Ready to refinance smart? Here’s your quick checklist:

✅ Know your current interest rate and loan terms
✅ Check your credit and fix any errors
✅ Calculate your break-even point
✅ Decide if you want to shorten or extend your loan
✅ Gather your income and asset documentation
✅ Compare quotes from multiple lenders
✅ Ask for a Loan Estimate to review all costs
✅ Make sure the benefits align with your financial goals

A good refinance puts more money in your pocket or helps you build equity faster. A bad one just resets the clock and adds fees you may never recover.

Need Help Finding a Trusted Refinance Lender?

At Trusted in Town, we connect homeowners with reputable local lenders and brokers who offer competitive rates — with no pressure or gimmicks. We’ll help you get real answers and clear options.