Linda Bell, Bankrate.com
When my husband and I refinanced our mortgage in 2009, we were sure we were in the right direction. We both had exceptional credit and we knew we could reduce our mortgage rate by more than 1 percentage point, as it would be considered de rigueur when refinancing. It’s easy isn’t it?
Looking back, I wonder. Other factors beyond the rate should have been considered, ranging from the overall cost of refinance to the impact on our home equity stakes. And instead of rushing to the current bank, we should have made some comparisons among lenders.
Below are seven missteps I made when refinancing my mortgage in 2009 and what I do today.
1. Focus on interest rates alone
I have to admit: I was focusing on the fact that I could cut my mortgage rate by 1.25% and shave almost $300 off my monthly mortgage payments. It felt like a big victory, and in a way it was.
What I wasn’t thinking about was the real cost of refinancing. I wasn’t fully aware of the importance of APR (annual rate). The APR reflects the total cost of the loan. Not only interest rates, but lending fees, points and other closure fees. Your APR could be total points higher than the interest rate quoted.
Lessons learned: APR is necessarily higher than interest rates and is a real number that you need to compare when evaluating offers. If I can do that, I will run the numbers through a mortgage refinance calculator to understand the total cost of refinancing.
2. Do not pay the closing fee in advance
Refinance is not free. Like a primary mortgage, the closing costs – come with a variety of fees related to applying, managing and underwriting the loan you pay, unless you get caught up in a mortgage instead. Refinancing for unclosed costs you can do so sounded great at the time. Between valuations, title insurance, lending expenses and all that, these costs were added and I didn’t want to pay any big sums. Plus, I found it easy to add these costs to my loan.
What I couldn’t grasp: If you roll over beyond the closing costs, the lender will add them to the new mortgage principal and the amount will be charged. As a result, the balance on the loan increases, monthly payments increase, and the interest paid for each lifetime of the loan increases.
Lessons learned: It’s been over 15 years since I refinance. I know I’ve collected the costs of my loans by now. But at the time, we didn’t calculate the numbers for a broken calculator for mortgage refinance to weigh the options. If I was refinancing now, I would be more interested in paying off my mortgage faster than achieving immediate savings.
3. There are no negotiation fees
Some are non-negotiable, but many refinance fees are not set for stones. It is at the discretion of the lender. This means that lenders can lower or even waive these fees, including large fees, such as origination fees. Lenders may offer automated payments or paperless statement discounts to stay competitive and win business.
In our case, we simply accepted the terminology provided by our lenders without asking questions. It’s not certain if they changed anything, but if you don’t ask, you won’t get it.
Lessons learned: Negotiations may not wipe out all the fees, but even trimming hundreds of dollars can make a difference. Comparing refinance offers from different lenders makes you a much better position to get the best deal.
It brings me to my next mistake…
4. I’m not shopping
Refinance is like buying something else. As the song says, you’re better off shopping. We made the mistake of refinancing with a mortgage lender, mainly because it was easy. We did not compare rates, rates, customer reviews or loan terms across the company. We were happy that we were approved and ready to move forward.
Refinance rates and terms vary by bank, credit union, and online lender. Even if you are a loyal customer, your current lender may not have the best deal.
Lessons learned: Get estimates from at least 3-5 mortgage refinancing lenders and compare the overall costs. Even small differences in rates like 0.25% can lead to significant savings over time.
5. Ignore the impact on home equity
The most important consideration when refinancing is how many households you have. It can eat into your homeownership stock, especially if you rent with cash-out refinance for a portion of your home’s value.
If you recall, 2009 was a period of unstableness for the US economy, near the edge of the official tail of the Great Recession. To say that the value of a home is decreasing is an understatement. The Federal Reserve Bank of Philadelphia said home prices fell on average 20% between December 2006 and December 2009.
At one point, like millions of homeowners, we were actually underwater on mortgages. In other words, we rented more than the house was worth. And reducing the costs of closures did not help the situation either. By increasing the overall mortgage balance, we lacked the shares of the homeownership we built (your home shares equal the value of your home to the mortgage, that is, the amount of the home you own).
Lessons learned: Since then, we have regained the equity and other things we have lost. However, some homeowners are not that lucky. Attom Data Solutions reports that in 2019, 10 years after the housing crisis ended, more than five million properties were still “severe underwater.” (A “significant underwater” mortgage is classified as at least 25% higher than the estimated market value of a home.) Always consider how much a refinance will affect your fairness. If the value of your home is reduced, or you plan to sell it before the price recovers, refinance can do more harm than good.
6. I have not purchased purchase points
Knowing that we weren’t planning on moving, we probably should have taken a long-term view when we refinanced. At the time, we chose not to buy points to lower interest rates.
Points usually cost 1% of the loan amount, with interest rates dropping by about 0.25 percentage points. That may not sound like a big difference, but over the lifespan of the loan, it can really be summed up. Let’s say you’re refinancing your $300,000 mortgage with 7% interest into a 30-year fixed loan. Here’s how savings collapse:
A 7% interest mortgage without purchasing points costs $418,527 over the life of the loan.
If you buy one point for $3,000, your interest rate will be lowered to 6.75%, and you will pay $400,486 per lifetime of your loan.
Buy two points for $6,000 and your interest rate will drop to 6.5% and you will pay $382,634 for the life of the loan.
In other words, paying $6,000 will save you $35,893 on interest costs.
Lessons learned: Purchase points are meaningless to anyone as they expand the points of entry in Refi. However, if you plan to be placed over a long period of time, it is worth doing math. It is clear that 15 years after refinancing, we paid much more interest than if we had made that investment. What I felt like saving money was a costly mistake.
7. Overlooked term options
When we refinanced, we went from a 30-year loan we had already paid for five years to a new 30-year mortgage. In hindsight, we missed a huge opportunity.
By refinancing for another 30-year mortgage, I essentially reset my watch, effectively extending my mortgage and extending my debt to 35 years. This means that even if the rate is low, you will still be paying more interest in the long term. What I didn’t notice was that even if my monthly payments were a little higher, it could have been that my refinance to a 15 or 20-year loan had dropped dramatically over time.
Lessons learned: Refinancing isn’t just about lowering your monthly payments. It could also reduce the duration of your loan and attract attention.
My Money Loan Mistakes Story
Do you regret refinancing your mortgage? No, but if I can rewind the clock, I approach the process more carefully. I put the numbers more carefully, think hard about long-term trade-offs, and ask more questions about APR and how our home equity will be affected. We looked closely at the costs we got caught up in the loan, tried to negotiate the fees and looked into whether the purchase points really made sense.
They also didn’t explore whether other Refi options like short-term loans would be better or whether they realized how important it is to shop for the best lenders.
Lessons learned: The refinance process is not just about getting a lower rate. Even when short-term savings are attractive, thinking in the long term is sometimes paid.
©2025 Bankrate.com. Distributed by Tribune Content Agency, LLC.
