Mortgage Refinance Alert
Refinancing your mortgage Can be Hazardous to your financial health
When mortgage rates drop, consumers are often bombarded with advertisements promising some interest rate that they thought they would never see again. While it’s understandable to fixate on the rate, there are some often overlooked and even some blatantly awful “deals” that are being offered currently (today is 12/23/2025).
Here are some pitfalls to watch out for:
- Resetting the term of your loan
- Rolling closing costs into a new, larger loan
- Falling for a 2-1 buydown – this one is especially egregious
Resetting the term of your loan
First, please be aware that when you are refinancing, you may be several years into your current loan (e.g. you’ve paid 3 years into a 30-year fixed and have 27 years left). The most common maneuver is to take out a new 30-year fixed mortgage, but that’s not the best plan. Be aware that you can take a lower interest rate and take out a loan with the same term as what is left on your current loan—in this case 27 years. Most people I speak with do not know that this option exists.
Adding years back to your mortgage is simply going in the wrong direction. After all, the objective is to pay it down, even pay it off sometime in the future, not keep resetting it.
Rolling closing costs into a new, larger loan
Next, rolling closing costs into your new loan amount. I’ve seen people that start the process with me who owe thousands of dollars more than when they purchased their property. When I ask if they’ve been taking cash out through refinances, I often get a no—they’ve refinanced several times and keep rolling the closing costs into an ever-expanding loan balance. This is also going the wrong way. Many folks combine this mistake with the first pitfall and compound the error(s). They keep resetting the loan term back to a 30 year and have an ever-increasing loan balance. Hold off on the refi until the closing costs are as low as possible (no points) and pay the closing costs in cash. Keep paying that loan down.
Falling for a 2-1 buydown
Last, refinancing with a 2-1 buydown. This is where you get a market interest rate, let’s say 6%, and, for a fee, you purchase a 2-1 buydown and get payments based on 4% for the first year, 5% for the second year, and then the loan goes to the original 6% beginning in the third year. Looks ok on the surface until you realize the upfront fee is simply the difference between your actual payments during the buydown period and what you would have paid without it. You are effectively pre-paying your mortgage upon consummation of the refinance. This is usually a very expensive process, and unknowing consumers just roll the cost of the buydown into a much higher loan (see pitfall #2).
These originally came into the market for purchase transactions during the high-rate environment that we went through during the inflationary environment and originally only the seller could pay for them. That scenario made sense. Now they're being offered to consumers trying to refinance. You get to pre-pay your mortgage by adding it to the current balance and take out a bigger mortgage to do it. This is financially devastating and should be illegal. If a lender offers something like this, please say no.
Power tip #1: If you have an impound account (property taxes and hazard insurance in your monthly payments) ask to have your escrows (impounds) netted during the refinance. This will help you keep the loan amount where it is.
Power tip #2: Start the refinance process with your current servicer (the company you send your mortgage payments to). See what they will offer you before you begin shopping for a better offer. You may receive an offer nobody else can beat or come close to. Start the process with this step.
Scott Lawson – 12/23/2025