Avoid these 8 mistakes when refinancing your mortgage

There are several reasons why a homeowner may consider refinancing their mortgage. It could be to pay less interest on the mortgage, to pull money from the house to put toward another expense or maybe to reduce the term length. Rushing in to the decision to refinance may not benefit your financial situation, so take time to avoid these eight mistakes.

Read more: When is refinancing a mortgage worth it?

Refinancing with your existing lender isn't always the best idea. Sure, they may have all your paperwork and know your payment history, but lenders are often competitive. You could land a lower interest rate by borrowing from a different lender.

To get a better picture of the costs, features and risks associated with your mortgage, review your  loan estimate .

Determine how long you would need to live in your house to reach the breakeven point by calculating how much refinancing could save you in interest costs against how much you'll pay in  fees/closing costs  to refinance.

For example, if you're going to save $125 a month in interest charges after refinancing, but closing costs are $5,000, you would need to stay in your home for at least 40 months to breakeven — that's almost four years. (To calculate, divide $5,000 by $125.) If you don't plan to stay in your home that long, it's probably best to stick with your existing mortgage

Avoid making the mistake of refinancing excessively to land a low interest rate. The charges to refinance repeatedly could add up over time, negating the benefits.

Be wary of also leveraging  home equity  too often. Mortgage interest rates are often lower than other types of loans, but it's possible for borrowers to take out too much equity compared to the value of their home. Your refinancing application may be denied if your outstanding loan balance is more than the current property value.

A home refinance requires cash on hand to cover all the fees and closing costs. (You can roll these into the balance of your new loan, but you'll pay interest on that amount, costing you even more.)

If you must take cash out of your emergency fund or take a cash advance on your credit card to pay for these expenses, carefully consider whether a refinance is worth it financially in the long run.

If you have excellent credit and have done your homework by comparison shopping, you might be able to secure a better interest rate and/or lower fees. Get quotes from several lenders and ask your preferred one if they can match another offer.

Make a game plan to avoid these common pitfalls, and you'll be much better prepared as you go into your refinance.