There are several important areas to consider if you’re thinking about refinancing your mortgage, from the impact it will have on your monthly spending to the long-term changes it might dictate. Another piece to be thinking about here: The impact a refinance may have on your credit.
At Primary Residential Mortgage, we’re happy to offer a wide range of mortgage programs and services, including for those looking to refinance a previous mortgage with a new one. While credit score isn’t the only factor to be thinking about with regard to a refinance, it’s definitely one to be keeping front-of mind. Here are some basics on how this process may impact your score, plus how to weigh those risks against the other benefits of refinancing.
Refinancing and Credit Score Impact
In some cases, refinancing may have a negative impact on your credit score. This can be for a few reasons:
- Credit checks: Refinancing means applying for a whole new mortgage, and that means your credit score and history have to be run in what’s known as a hard inquiry – the type that lowers your credit score. And if you apply for several such loans, which many people do, your credit might drop significantly as a result.
- Closing an account: Closing out your current mortgage also means you’ve closed a long-standing credit account, a factor that’s known to drop your score. However, as long as you’ve been paying this mortgage on-time, this area won’t drop your score very much – if you’re behind, though, it could have a big impact.
Now, this does not mean your credit will stay down permanently. Once you open your new mortgage and begin paying it down in a timely manner, your credit will go back up.
Weighing Vs. Refinancing Benefits
At the same time, there are several benefits to refinancing that might make a slight drop in credit easily worth it. These include:
- Lower interest rates, which also often mean lower monthly payments.
- Shorter loan terms, allowing you to own the home fully earlier than expected.
- The ability to cash out on your home’s equity, paying you out a lump sum that could be used for several different needs.
There are many situations where accepting a small drop in your credit score – which you know you can rebuild moving forward – is easily worth it to obtain these benefits.
Making Your Choice
And when it comes to making your choice here, the above is really the biggest factor to look at. If you know refinancing will drop your score significantly, are the reasons you’re doing it still worth that risk? If you’re unsure, don’t hesitate to speak to our loan officers for tips and expertise.
For more on the impact refinancing a mortgage will have on your credit, or to learn about any of our mortgage loans or mortgage rates, speak to the staff at Primary Residential Mortgage today.
*PRMI NMLS 3094. PRMI is an Equal Housing Lender. Some products and services may not be available in all states. Credit and collateral are subject to approval. Terms and conditions apply. Programs, rates, terms, and conditions are subject to change and are subject to borrower(s) qualification. This is not a commitment to lend. Opinions expressed are solely my own and do not express the views of my employer.