WHAT IS REFINANCING — AND HOW DOES IT AFFECT YOUR CREDIT?

Homeowners refinance for many reasons — accessing equity, lowering interest costs, consolidating debt, funding renovations, or investing. But one of the most common questions is: “Will refinancing hurt my credit?”

To understand the impact, you first need to understand how refinancing works and what it changes 👇

1️⃣ Refinancing comes with penalties and contract restructuring

Refinancing means breaking your existing mortgage contract and replacing it with a new one.

✔️ breaking the term triggers a penalty

✔️ penalty varies by lender and mortgage type

✔️ fixed and variable mortgages are treated differently

This financial reset occurs before any changes to your credit profile take place.

2️⃣ Penalties differ depending on your mortgage type

Penalty calculations depend on your existing structure.

✔️ fixed-rate mortgages use IRD or 3 months’ interest

✔️ variable-rate mortgages use 3 months’ interest only

✔️ lender formulas can differ significantly

The greater penalty applies, and costs can vary widely between institutions.

3️⃣ Borrowing limits apply when refinancing or using a HELOC

There are strict loan-to-value rules when accessing equity.

✔️ refinancing limit is 80% of appraised value

✔️ HELOC limit is 65% of value

✔️ combined mortgage + HELOC cannot exceed 80%

These rules keep borrowing within regulated limits and ensure equity remains in the property.

4️⃣ Refinancing does affect your credit — here’s how

Any time you increase your mortgage or access equity, your overall debt profile changes.

✔️ new mortgage inquiry recorded

✔️ higher balance may impact credit score

✔️ additional debt impacts utilization

✔️ new structure appears on your credit report

Even though it’s secured debt, it still affects your credit profile like any other loan.

5️⃣ Reasons for refinancing matter financially

Before refinancing, it’s important to evaluate whether the decision is strategic.

✔️ home renovations

✔️ investment opportunities

✔️ education costs

✔️ debt consolidation

These are purposeful and financially productive uses of equity.

However:

✔️ vacations

✔️ discretionary spending

…are generally not strong reasons to break a mortgage and take on additional debt.

💬 Final Thought

Refinancing is a powerful financial tool — but it changes your mortgage, your debt levels, and your credit profile. Understanding penalties, limits, and purpose ensures the decision supports your long-term goals without unnecessary financial strain.

For a personalized refinancing review and credit-impact breakdown, send The Frontline Mortgage Group a message anytime.