Considerations

• When interest rates drop below a certain point, you might consider credit refinancing. The decision to do this often depends upon the length of time remaining on the original mortgage and the difference in interest rates. Many people will refinance when there is more than one percent difference between their old mortgage rate and the current rate.
  
  

Effects

• Problems arise when costs such as closing costs are not factored into the savings. If an individual is going to save $100 a month after refinancing, but will pay $5,000 in closing costs, actual savings won't be seen until over 4 years have passed. Had credit refinancing not taken place, the individual would be that much closer to paying off the entire debt. Closing costs can have a tremendous effect upon credit refinancing.
  
  

Time Frame

• Another problem with credit refinancing is that the entire debt of the home basically starts over. So, if an individual is four years away from paying off a debt and then decides to refinance it with a 15-year mortgage, the new debt, while lower than the original, will still place the individual in debt. The time frame of the loan goes back to the beginning.
  
  

Equity

• Credit refinancing might seem to be a good solution for lowering payments in the short term, but there can be long term problems. After all, when credit refinancing takes place, all of the equity in a home is gone. The reason that equity is important is because it gives the owner of a property some flexibility in areas such as selling the home. If a house is selling for $200,000 and the owner has $100,000 in equity, the owner can actually come down in his asking price to $150,000 and walk away with money in his pocket. However, if that same house has been refinanced recently and is selling for $200,000 with no equity, the owner will have a lot less leeway in negotiating a sale.
  
  

Warning

• Another aspect of refinancing to consider it the impact on your credit score. While an occasional refinance won't hurt your credit score too much, if you refinance too often, your score can suffer. Every time that you refinance, the mortgage lender will check your credit --- which flags your credit report. Too many of these flags can impact a credit score.