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Refinance Your Mortgage: Guide to refinancing in 2022

Historically low mortgage rates and rapidly changing economic conditions could make refinancing your home in 2022 a smart personal finance move. 

In considering a home-refinance, let’s start with a clear understanding of what that is. Refinancing your mortgage is replacing your current home loan (or mortgage) with a new one. Most homeowners refinance their mortgage to take cash out from their home’s equity, lower your monthly mortgage payment, or shorten the term of your mortgage.

Let’s take a look at each of the steps in refinancing a mortgage.

  1. Preparing to refinance
  2. Understanding your loan options
  3. Appraisals and underwriting
  4. Closing on your refinance mortgage

Are you ready to discover your personal refinancing options? Fill out this brief online application and we’ll immediately connect you with a professional mortgage loan officer to answer all of your questions.

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1. Preparing to refinance

Preparing to refinance your mortgage is much like the steps you took to buy your home and qualify for your current mortgage. When you refinance your loan you will need to re-qualify for the new mortgage and the refinance needs to be beneficial to you and your personal situation.

This is why you should quickly review and take inventory of your personal financial situation.

  • Income and employment - Are you still employed and earning a consistent income. We’ll want to make sure that you will continue to be able to make your mortgage payments under the terms of your new mortgage.
  • Debt and DTI - Is your debt situation still manageable and is your Debt-to-Income ratio still at a qualifying percentage. To learn more about your DTI ratio and how it will effect your loan talk to one of our loan professionals.
  • Savings - Good news! There is no need to come up with a down payment this time, but you will still need some savings to cover closing costs or sometimes this can be rolled into the new loan.
  • Credit Score - Hopefully your credit score is still in a good qualifying range. Often, people learn a lot about their credit during their home buying process, so when it comes time to consider refinancing their credit score often has improved. This can give you even more opportunity to get a better mortgage loan this time around.

Assuming that you’re in a good qualifying situation it’s time to think about all the reasons you might want to consider refinancing and how it might benefit your personal situation.

2. Understanding your loan options

If you’re thinking about refinancing you should start with a clear goal in mind. This will help guide the decisions you make along the way. Some of the most common goals are related to improving your personal financial situation.

Reducing your monthly mortgage payment

One of the most common reasons to refinance is simply to lower your monthly mortgage payments. Mortgage rates do move up and down, and often you can take advantage of lower rates. In addition, if your credit score has significantly improved you might qualify for a better mortgage rate.

Cash-out some of the equity you’ve accumulated in your home

Another popular reason to refinance, especially in a housing market where home prices are rising, is to take advantage of your home’s equity.

Home equity is the difference in the amount that your home is worth compared to what you have left to pay on the mortgage. Many homeowners through a combination of rising home values and diligently paying down their mortgage over the years have a significant amount of cash locked up in their homes.

By doing a cash-out refinance you can extract some of that cash for other purposes, like home improvements or debt consolidation.

Pay off your mortgage faster

You might also be looking to pay off your mortgage faster. You can of course always just pay more towards your current mortgage each month, but sometimes there are some advantages to refinancing into a shorter term.

For example, in refinancing from a 30-year fixed-rate to a 15-year fixed-rate, and enjoy a better interest rate and a shorter term. This may allow you to pay less interest over the life of your mortgage loan.

Get rid of FHA mortgage insurance

Many first time homebuyers begin with an FHA mortgage. This is a government-backed mortgage designed to make homebuying affordable. But, it does have one feature that can significantly add to the amount you pay over the life of the loan - The Federal Housing Administration Mortgage Insurance Premium (MIP). This much like PMI on a conventional loan, but unlike a conventional loan it does not go away when you have reached 20% equity in your home. 

Consequently, if you don’t refinance your home you will be paying this significant additional monthly expense that does not go towards paying down your mortgage.

Switch from an adjustable-rate mortgage to a fixed-rate loan

As we mentioned before, mortgage rates change based on a variety of economic and market factors. As a result, getting a good mortgage rate can be a matter of timing.

During a low or descending rate environment, you might have opted for an adjustable-rate mortgage. These mortgage loans have a variable interest rate that adjusts, on a predetermined schedule, to the prevailing market interest rates. 

In low or declining interest rate markets this type of loan has a lot of advantages. However, if the market is showing signs of interest rates rise, or they have already begun to rise you might want to refinance. By refinancing you can move from an unpredictable adjustable-rate mortgage to a locked-in low fixed-rate mortgage.

Are you ready to discover your personal refinancing options? Fill out this brief online application and we'll immediately connect you with a professional mortgage loan officer to answer all of your questions.

3. What are the costs of refinancing?

Like I mentioned earlier there is no down payment to refinance, but there are some costs inherent in the creation of the new mortgage. These costs vary depending on the size of your loan, the lender, your location, your credit score, and several other factors. However, a good rule of thumb is to anticipate closing costs similar to your original mortgage - 2-6% of your loan amount.

Here are some common source of closing costs fees:

  • Application fee
  • Origination fee
  • Credit report fee
  • Home appraisal
  • Home inspection
  • Flood certification fee
  • Title search and insurance fee
  • Recording fee
  • Reconveyance fee 

This brings up one additional consideration in determining if a refinance is worth it - your break-even point. It’s important to do the math. Based on your refinance savings when will you experience the savings? This will be after you have saved more than it costs to refinance. Typically, this break-even point is just a few years after the refinance. 

Of course, it’s important for you to plan on staying in your current house for many years into the future to fully appreciate the savings.

4. Closing on your refinance mortgage

Closing on your refinance mortgage is very similar to closing on a new home purchase. You will still need to attend a mortgage closing to sign your settlement statement, your mortgage note, the mortgage or deed or trust, and pay any closing costs.

Next Steps?

That’s all there is to it. But, I’m sure you have some questions about your personal situation and refinancing. This is where a professional mortgage loan officer can be invaluable. We’re always happy to answer questions and share the refinancing options that are available to you personally.

Fill out our brief online application and then we’ll set up an appointment that is convenient for you and we’ll talk through some possibilities.

Are you ready to discover your personal refinancing options? Fill out this brief online application and we'll immediately connect you with a professional mortgage loan officer to answer all of your questions.