This post lists seven refinance mistakes DC homeowners can avoid, with the fix for each one.
1. Looking only at the interest rate
Whether a refinance saves money depends on the closing costs, the loan term and how long you keep the loan, as well as the rate.
The fix: Calculate your break-even point. Divide total closing costs by your monthly savings. If you will move or refinance again before the break-even month, the refinance costs more than it saves.
A refinance that costs $8,000 to close and lowers the payment by a small amount takes years to break even. Run your own numbers with the refinance savings tool before you commit.
2. Paying DC recordation tax on a refinance
DC charges no recordation tax on a residential refinance. Check that your Loan Estimate does not list one.
The fix: Get a detailed Loan Estimate that includes all government recording charges. DC fully exempts residential refinances from recordation tax, including the entire loan on a cash-out, for homes with 5 or fewer units, claimed with a one-page Security Affidavit your settlement agent records at closing (D.C. Code § 42-1102(21); see our DC recordation tax page). If your estimate shows recordation tax on a residential refinance, ask why.
3. Taking only one quote
Freddie Mac's research (2018, updated 2023) found that borrowers who gathered several quotes paid materially less over the life of the loan than those who took the first one.
The fix: Compare at least three quotes on APR (which includes fees) and total cost. Compare our quote against the others the same way, and see our published rates. Do your shopping within 45 days (14 on older FICO models) so the inquiries count as one.
4. Resetting to a 30-year term
When you refinance, you are offered a new 30-year term by default. If you are 8 years into your current mortgage, a new 30-year loan adds 8 years to your payoff timeline.
The fix: Match your remaining term. If you have 22 years left, look at a 20-year refinance. On the same balance and rate, a 20-year term has a higher monthly payment than a 30-year term and less total interest. Run both terms on our savings calculator.
5. Keeping mortgage insurance you could drop
If you put less than 20% down, you are paying PMI (conventional) or MIP (FHA). A refinance removes the mortgage insurance only if the new loan is structured for that.
The fix:
- Get an appraisal to confirm your current home value
- If you have 20% or more equity, ask for the new conventional loan to be structured without PMI
- If you put down less than 10% on an FHA loan, refinancing to conventional is the only way to drop the annual MIP
If you bought before 2021 with 5–10% down, check your equity: five years of principal paydown plus any rise in your home's value may put you past 20%.
6. Rolling closing costs into the loan
Rolling $8,000 in closing costs into the loan means borrowing $8,000 more and paying interest on that amount for the life of the loan.
The fix: Run the numbers both ways: pay the closing costs at the table, or add them to the balance. If you have the cash, paying at the table costs less. If paying at the table would empty your emergency fund, roll the costs in.
7. Waiting for rates to drop further
Decide on today's rate and closing costs. A lower rate later is a forecast, and a forecast cannot go into a break-even calculation.
The fix: Refinance now if all three of these are true:
- The refinance saves money at today's rates
- You will stay long enough to break even
- The new loan improves your overall financial position
If rates fall further later, you can refinance again once the new break-even works.
Documents to gather before you refinance
Gather these before you apply:
- Current mortgage statement (rate, balance, payment, remaining term)
- Recent property tax bill
- Homeowners insurance declaration page
- Two most recent pay stubs
- Two most recent bank statements
- Most recent W-2s or tax returns
- Your credit reports (free at annualcreditreport.com) and a recent score from your card issuer or bank
With these ready, each lender quotes on the same information, so the quotes are comparable.
Read the refinance overview or get pre-qualified. Pre-qualification takes two minutes and does not pull your credit.
