4 Things to Know Before Refinancing Your Mortgage

Refinancing mortgage loans are becoming an increasingly popular option for most homeowners. Mortgage refinancing typically involves taking a new home loan to pay off your existing mortgage. There are many reasons why you should consider refinancing your mortgage, including to benefit from low-interest rates, shorten mortgage terms, or tap into home equity.

While these benefits may incentivize most homeowners to refinance their mortgage, they should do so based on their personal financial situation. The current rates shouldn’t solely be the determining factor when deciding whether you should refinance or not. Below are important factors to note before you refinance your mortgage in Texas.

4 Things to Know Before Refinancing Your Mortgage
4 Things to Know Before Refinancing Your Mortgage

Evaluate your home’s equity

Before thinking of refinancing, you should begin by working out your home’s equity. If your property’s value is less than the mortgaged value (negative equity), refinancing your mortgage won’t make sense. Fortunately, homeowners can benefit from increased equity with the surge in consumer confidence, especially after the pandemic.

Mortgaged properties account for 63% of properties in the U.S. A recent survey shows that homeowners with mortgaged properties have seen a 29.3% equity increase, translating to a $51,500 average gain per borrower since 2020. As such, homeowners with decreased equity have significantly declined.

Nonetheless, some properties haven’t gained much value, exposing homeowners to low equity. Unfortunately, conventional lenders won’t agree to refinance properties with little equity. You can comfortably qualify for refinancing if you have at least 20% home equity.

Check your credit score

Lenders have reviewed their lending guidelines recently, making it difficult for homeowners with poor credit scores to get approved for loans. You might be surprised that you can’t be approved for refinancing even with good credit, so you should know your credit score before approaching a lender for refinancing.

Typically, you should have a score of 760 or higher to qualify for a mortgage with low-interest rates. Homeowners with average credit scores can qualify for new loans, but will have to pay high interest rates.

Know your debt-income ratio

Most homeowners assume that they qualify for mortgage refinancing simply because they already have a mortgage loan. Unfortunately, as with credit scores, lenders have also developed strict debt-to-income ratio guidelines.

Even though several factors, such as high income, long job history, and substantial savings, can increase your chances of qualifying, lenders often ensure that monthly housing payments don’t exceed 28% of the gross monthly income. Generally, your debt-income ratio should be less than 36%.

Costs of refinancing

Refinancing your mortgage costs between 3% and 6% of the total mortgage loan. However, homeowners seeking refinancing can reduce their costs in several ways. For instance, if you have sufficient home equity, you can include refinancing costs into the refinanced loan, which increases the principal.

Some lenders also offer no-cost refinancing options. However, you will burden high-interest rates to cover closing costs. Always shop around and negotiate with your lender before taking the deal.


Like other financial issues, mortgage refinancing can prove complicated for most people. Therefore, homeowners should do due diligence to understand everything surrounding refinancing before applying. Speaking with your lender can help iron out some crucial concerns and decide if refinancing is a good option.

Marie Foster
Marie Foster
Marie Foster is a reporter based in UK. Marie has also worked as a columnist for the various news sites.


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