Here are some three things you need to know before refinancing your mortgage?

1. Refinancing the Mortgage comes at a cost. Many of us are only aware of the said benefits of refinancing, but few stop to think about the potential costs of doing so. The best way to find these costs is by going through the ‘fine print’ of your mortgage agreement, as it is here that such inconvenient facts are mentioned. The costs in question here include the transaction costs of refinancing the mortgage and the ironical penalties of repaying a loan earlier than previously agreed, which mortgage lenders tend to impose on people taking the mortgages. And besides fees and penalties from the original lender for jumping ship mid course, the people refinancing the mortgage consider the refinancing a service they extend to you, and for which you have to pay them. Sometimes, all these costs eat up all the potential savings you stood to get by refinancing the mortgage.
2. Refinancing could backfire: A significantly lower interest rate can be motivation for refinancing a home loan – but by extending the repayment period of the mortgage through the refinancing agreement, you might still find yourself paying more (perhaps even more than you would have originally paid), in terms of total payment amounts - when the longer repayment period is taken into account. Moreover, such extension on the mortgage repayment period could push the loan repayment period – where people have been known to extend their mortgage repayment periods by up to 30 years - to a time when your income would have fallen, making it even harder for you to continue repaying the debt.
3. Refinancing does not automatically translate to credit score improvement. Many people approach mortgage refinancing because of its ‘said’ credit score improvement benefits. But such credit score improvement benefits are only likely to accrue if the refinancing, for instance, yields a reduction in the portion of one’s income that goes towards the repayment of the debt (also called the income-debt ratio), which can in turn lead to improvements in the credit score.