With the current low interest rates, it seems like everybody is refinancing. If you haven't started the process (or even if you have!), check out these five mortgage myths.

Myth: Refinancing will be just as easy as getting your initial mortgage.

This depends as every refi is on a case-by-case basis. Because so many lenders have been burned in the past few years with bad loans, the industry in general has tightened up its underwriting guidelines. If your initial loan did not require a lot of documentation, you might be taken aback by today's regulations. While this may make things more difficult for some consumers, it's much better for the industry (and our economy). The general rule of thumb is that if you have bad credit or not much equity in your home, you may find that you have difficulty getting approved for mortgage refinancing.

Myth: A refinance will always be a better deal than your original mortgage.

While this is mostly true - why would you be refinancing if not to get a better deal? - it's not always true. When you take out a loan refinance, there are associated closing costs. If you only plan to be in your home for a short period of time, the closing costs may not pay for themselves in savings in the long run. At the same time, if your master plan is to just be in your home another five years or so and then sell, you may want to consider your local market and whether or not it's realistic that you will actually be able to sell your home at that time. If not, maybe the cost of a refinance is ultimately more worth it.

Myth: Refinancing will always lower your monthly costs.

Why else would you be doing it? Actually, some people refinance for higher monthly costs. Crazy? Not really. Some homeowners refinance to change the terms of their loan or the type of their loan. They may choose to refinance for a shorter term, which may mean higher monthly costs. Ultimately, though, it means less finance costs and is an overall savings.

Myth: You will always be able to get a refinance if you already have a loan.

No. Aside from having to qualify for a refinance (which you may not be able to do), you also need to know whether or not you have the proper equity in your home. If you decided to do a no interest loan or have used a home equity loan to borrow against the equity in your home, you may not have the proper equity for a refinance. Generally, you need at least 20 percent equity in your home to refinance. If your home's value has declined in the past few years, this may end up being an issue, especially if you owe more than your home is worth.

Myth: You should always refinance to a fixed rate mortgage if you currently have an ARM.

While this is generally sound advice it's not always true, especially if you don't plan on being in your house for that long. If you don't plan to be in your home for more than a few years, it's worth looking at a new low rate ARM that has a fixed rate for however long you plan to be in your house. Again, this strategy can be a gamble in this market and you should always calculate your closing costs versus your savings.

Refinancing your mortgage can be a great strategy for breathing new life into your finances. Know what you are in store for and you will have a better chance of qualifying and a better chance of finding a refi that will make you and your wallet happy.

Published on August 6, 2013