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6 Mortgage Refinance Myths Debunked

Jul 10, 2020, 09:45 AM
House with arrows indicating the rising and lowering of interest rates

Record low interest rates has brought many homeowners to the refinancing table looking to lower their mortgage. But, this refinancing frenzy has brought many misconceptions to light, so we’re here to set the record straight. Here are six mortgage refinance myths – debunked!

Myth #1 - You'll have to reset the clock to 30 years.

Maybe you’re feeling good because you’ve already paid off 10 years of your existing loan, and the thought of restarting and moving the finish line back to 30 years sounds, well, long and daunting. However, the right refinance product for you depends on your time frame and future plans; it might well not be a plain-vanilla 30-year loan.

Myth #2 – You can’t refinance an ARM

Seeing your Adjustable Rate Mortgage (ARM) increase after the introductory period can be incredibly stressful and most certainly put a squeeze on your budget. Many people assume they’re stuck, but ARMs can be refinanced, just like fixed-rate mortgages. You can even switch to a shorter term fixed-rate mortgage, such as 15 or 23 years. The longer you’re planning to stay in the home, the more sense it makes to look into refinancing.

Myth # 3 – You’ll lose your equity

Your home equity is only affected if you add to your loan principal, as you would during a cash-out refinance. The cash is accessed from the home equity you’ve earned so that equity will lower based on the amount you take out.

What you need to know: simply lowering your interest rate, dropping mortgage insurance, or shortening your term will not affect your equity. So you can take advantage of today’s competitive rates while also continuing to build your equity. That equity may come in handy further down the line when you need access to cash or want to use it toward a new home down payment.

Myth #4 - A minimum of 20% in home equity is required to refinance

The idea that you need at least 20% equity to refinance is a recommendation, not a rule. Although loans that allow less than 20% equity typically require mortgage refinance, you’re still eligible to apply for refinancing. Just be sure to do the math, confirming that, even with the addition of mortgage insurance, you’re still saving money over the life of the loan.

Myth # 5 - Closing costs are expensive

Depending on the amount of your loan, the value of your property, and your lender, you may not have to pay any closing costs out of pocket—there may be alternatives. One option is to roll your closing costs into your new mortgage loan, which you can then pay off via your monthly payments. Your mortgage loan officer should be able to discuss any available options with you.

Myth #6 – You won’t be approved if you’ve been denied for a refinance in the past.

A previous refinance denial doesn’t mean this avenue is closed to you forever. Some applicants are turned down due to an inability to meet equity and credit score requirements.  Not to mention, if you’ve been working on ways to raise your credit score, you may have experienced a significant increase. So, if your situation has changed for the better in either of these categories, now may be the best time to reapply!

Rates are at 50-year lows1 – now may be the time to refinance. For a limited time, we’re making the savings even better with ZERO ORIGINATION FEES – which could mean $2,000 in savings or more!2

 Visit or call 505.342.8957 to see if you can save. It doesn’t cost you anything to find out.

 1As of May 2020 national findings by Individual savings may vary. 2$2,000 savings based on typical 1% origination fee for $200,000 refinance. Individual savings may vary. No origination fee offer

 available for limited time – through 8/31/20. All loans subject to credit approval. Must meet US Eagle membership qualifications including opening a $5 share account. See US Eagle for complete details.

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