Refinancing Your Home
We talked to our trusted mortgage lender, Chris Kinsella, to get the scoop on refinancing — what it is, when to do it, & what the benefits are.
&, make sure to check out our Frequently Asked Questions!
What is refinancing?
A refinance is replacing your current mortgage with a new mortgage to do 1 of 4 things (or a combination of them):
- Lower your interest rate for a lower monthly payment on your mortgage.
- Remove private mortgage insurance (PMI) from your loan.
- Shorten the term of the loan to pay off the mortgage faster and have long term interest savings.
- Take money out of your home for renovations/debt consolidation.
A refinance does cost money (see below!), & so the benefits need to far outweigh the costs. An experienced mortgage lender (like Chris!) can help you determine if this makes sense for your situation.
Process for Refinancing
You will want to have a consultation with a lender to review your current mortgage structure compared to what a new mortgage would be. From there, they’ll get some basic information and documentation to get the loan into underwriting. Refinancing is much more streamlined than a purchase, as there are no agents or attorneys! Depending on the refinance, you may or may not need an appraisal on the new loan.
You also will need to have a credit check run, so that is something to be aware of!
Timing a Refinance
Everyone’s situation is different when it comes to the timing of a refinance. There is no set percentage drop to have things make sense for a refinance. I have had clients refinance with a .25% drop in rates, & other situations where it didn’t make sense to refi even with a 1% drop in rates. It depends on your goals and current mortgage terms. This is why you’ll want to have a consultation with a trusted loan officer to help you decide when it makes sense for you.
You may need an appraisal on the new loan, however, many refinances do not require a new appraisal to be done, which speeds the process and saves you money. Refinancing is much more streamlined than a purchase, as there are no agents/attorneys and also has far less costs than a purchase (typically around $2,500 as opposed to 2-3% of your sales price on a purchase).
Cost of a Refinance
Great news — refinancing is far less costly than a purchase! A refinance typically costs around $2,500 — for reference, when you initially purchase your home, you pay about 2-3% of your purchase price in closing costs.
Conservatively, I advise clients to budget about $3,000 for 3rd party closing costs on a refinance in Illinois before any lender credits.
Your lender should explain the costs of refinancing & how best to structure loan amount, any fees (such as discount points), & if you should pay for your closing costs or roll them into the new loan.
Frequently Asked Questions
- Do you need to refinance with your original lender?
- What happens to the current amortization schedule?
- Can you refinance multiple times?
- Are there any other considerations?
Do you need to refinance with your original lender?
You do not need to refinance with your original lender!
What happens to the current amortization schedule?
A refinance will reset the amortization schedule on your loan. You’ll want to make sure your lender structures the loan in the most optimal way for your situation.
Can you refinance multiple times?
You can refinance as many times as you want. My philosophy with refinancing is to only do it if the benefits far outweigh the costs for your situation. I have had people refinance 3 times, & each time we had a consultation to ensure the refinance made sense for their goals.
Are there any other considerations?
Clients should take a long term view of their situation. Most people don’t know that by shortening the term of their loan, they can save tens of thousands of dollars on the overall interest of their loan. Paying off your largest debt faster will have enormous positive impacts on your overall financial situation. This is why I will review all options with clients, such as a 15 or 20 year fixed, or potentially and adjustable rate mortgage (ARM). This is to help you reduce your total debt and achieve your Freedom Payment (last mortgage payment) on your home as quickly as possible.
Melanie Everett & Company provides the above Q&A in good faith, but each client should consult with a lender based on their own specific need. Melanie Everett & Company does not formally endorse any of the above, nor do they receive any financial compensation for referrals or for providing the above information.
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