Refinance Center

Refinancing can be a smart financial move but there are some factors that should be carefully considered first:

1. Interest Rates Are Lower
If current mortgage interest rates are significantly lower than the rate on your existing loan, refinancing can lower your monthly payments or save you money over the life of the loan. In some cases this might be a modest amount each month but over 15 or 30 years the amount can be substantial.

2. Improved Credit Score
If your credit score has improved since you took out the original loan, you may qualify for better terms like a lower interest rate.

3. Shortening Loan Term
If you’re looking to shorten your loan term (e.g., going from a 30-year to a 15-year mortgage) and can afford slightly higher monthly payments, refinancing could save you on interest payments in the long run. This option should always be reviewed if your goal is to pay off your loan earlier. There are so-called odd term loans as well such as terms like 23 years or 18 years that allow you lower your term but match it to your budget.

4. Cash-Out Refinancing
Your home equity has likely grown (significantly in some cases) over the past few years given national rates of housing appreciation. If you need funds for major expenses (like home renovations or debt consolidation), cash-out refinancing allows you to borrow against your home’s equity. In these cases, even though your rate might be changing, the monthly payments being eliminating by consolidation of debt (as an example) will lower your overall monthly payments. In short, you are using some built up equity to reduce debt or increase the value of your home through a renovation project.

5. How to analyze closing costs – Break-Even Point is Achievable
If you plan to stay in your home long enough to recoup the costs of refinancing (like closing costs), it’s worth considering. The break-even point is the time it takes for your savings from lower payments to cover the costs of refinancing. Example: if your closing costs are $5,000 (whether you can roll this into your loan or pay the costs at closing does not matter in this analysis since you really want to determine “break even”) and your monthly savings are $500/month, it will take you 10 months ($500×10) to “recapture your $5,000 in closing costs. If you plan to stay in the home for longer than 10 months then refinancing makes sense. If not, then even the appeal of a lower rate is not worth it. A common rule of thumb is a five year break even point for refinancing to be viable but this breakeven point is still unique to everyone.

6. Eliminating Private Mortgage Insurance (PMI)
If you’ve built up 20% equity in your home, refinancing can eliminate PMI payments, which can reduce your monthly payment. Review what your PMI payment is now, and even though your rate might not change, the elimination of this portion of your payment can be significant. Note there are also ways to eliminate PMI without refinancing so careful consideration should be given to all options.

7. Always speak with a professional loan officer
A professional loan officer will help you navigate these questions and give you things to think about or consider before making a decision. Always talk to a loan officer first to gather information.

Refinancing a mortgage can offer several financial benefits, depending on your goals and circumstances. Here are some of the main advantages:

1. Lower Monthly Payments
Benefit: By refinancing to a loan with a lower interest rate, your monthly payments can be reduced, easing your cash flow and freeing up money for other expenses or investments.

2. Lower Interest Rate
Benefit: Refinancing at a lower interest rate can save you a significant amount in interest payments over the life of the loan, especially for large loans like mortgages.

3. Shortening the Loan Term
Benefit: By refinancing to a shorter loan term (e.g., from a 30-year mortgage to a 15-year mortgage), you can pay off your loan faster, saving on interest, and build equity in your home more quickly.

4. Switching from an Adjustable-Rate Mortgage (ARM) to a Fixed-Rate Mortgage
Benefit: If you have an ARM and interest rates are rising, switching to a fixed-rate mortgage can give you the stability of predictable payments over time, protecting you from future rate increases.

5. Consolidating Debt
Benefit: With cash-out refinancing, you can use the equity in your home to pay off higher-interest debts like credit cards or personal loans, consolidating them into a lower-interest mortgage loan. This simplifies your payments and reduces the overall interest you pay. Also you can significantly lower monthly payments.

6. Eliminating Private Mortgage Insurance (PMI)
Benefit: If you’ve built up enough equity in your home (typically 20%), refinancing can help you get rid of PMI, reducing your monthly mortgage payments.

7. Access to Cash (Cash-Out Refinance)
Benefit: If your home has appreciated in value, you can tap into its equity for major expenses like home improvements, college tuition, credit cards, or starting a business. Cash-out refinancing gives you access to funds while still potentially lowering your interest rate or improving loan terms.

8. Improving Loan Terms
Benefit: Refinancing can allow you to renegotiate the terms of your loan, which could include reducing fees, changing the loan duration, or adjusting repayment schedules to better fit your financial situation.

9. Removing a Co-Borrower
Benefit: Refinancing can help remove a co-borrower (such as after a divorce, parent or sibling co-signor, or business separation), making the loan solely your responsibility.

10. Stabilizing Payments
Benefit: Refinancing into a fixed-rate loan from a variable-rate one can stabilize your payments, especially during times of rising interest rates, giving you peace of mind about future costs.

The key is understanding your specific financial goals—whether it’s lowering payments, saving on interest, consolidating debt, or accessing cash—and determining if refinancing aligns with those objectives. A professional loan officer will help you navigate these questions and give you things to think about or consider before making a decision. Always talk to a loan officer first to gather information.

Refinancing comes with costs that you should be aware of before proceeding. While refinancing can save you money over the long term, the upfront costs should be considered. The costs are generally divided into several categories: lender fees, legal fees, recording fees, and escrow saving account set up (note this is not a fee but should be considered in your analysis for things like tax and insurance escrow). Some fees are also optional. Again, when reviewing fees it is always best to speak with a professional loan officer who will explain all the fees in detail. Note that the examples below are estimates and your actual fees may vary significantly from the examples below. These examples are meant to be illustrative only. Your lender will provide you an exact estimate of costs in what is referred to as a “Loan Estimate”. Here’s a breakdown of the common industry expenses associated with refinancing:

1. Loan Origination Fee
• Cost: 0.5%–1% of the loan amount
• What it Covers: This is the fee the lender charges to create the new loan. It covers administrative costs, and in some cases, you may be able to negotiate this fee or have it included in the loan.

2. Appraisal Fee
• Cost: $400–$600
• What it Covers: The lender will typically require an appraisal of your home to determine its current market value. This ensures the home’s value is sufficient to secure the loan. In some cases, lenders may waive or reduce the need for a full appraisal.

3. Credit Report Fees
• Cost: $150-$300
• What it Covers: The cost to obtain your consumer credit report which helps a lender determine creditworthiness which is a factor in obtaining loan approval.

4. Title Search and Title Insurance
• Cost: $700–$2,000+
• What it Covers: This fee covers a title search to ensure that the property is free of liens and title insurance to protect both the lender and the borrower against future title claims. Even though you already have title insurance, refinancing requires a new policy in many cases.

5. Attorney Fees (if applicable)
• Cost: $500–$1,000
• What it Covers: Some states require an attorney to be involved in the closing process. These fees can vary depending on the attorney and the complexity of the transaction.

6. Recording Fees
• Cost: $50–$200
• What it Covers: These are fees paid to your local government for recording the new mortgage documents.

7. Mortgage Points/Rate Buy-Down (Optional)
• Cost: 1% of the loan amount per point
• What it Covers: Mortgage points, or “discount points,” are optional fees you can pay upfront to reduce your interest rate. One point typically costs 1% of the loan amount and can lower your rate by about 0.25% on average.

8. Private Mortgage Insurance (PMI)
• Cost: Varies (if applicable)
• What it Covers: If you have less than 20% equity in your home, you may need to pay PMI. However, if you’re refinancing and your home value has increased, you may be able to eliminate this cost.
9. Escrow and Taxes
• Cost: Varies
• What it Covers: Depending on when you refinance, you may need to set up a new escrow account to cover property taxes and homeowners insurance, which might involve upfront payments for these items.

The value of your home plays a critical role in your ability to refinance because lenders use it to determine the amount of risk they are taking on. Here’s how your home’s value affects refinancing:

1. Loan-to-Value Ratio (LTV)
• What It Is: LTV is a measure of how much you owe on your mortgage compared to your home’s current appraised value. It’s calculated by dividing the loan balance by the home’s value. Example: Your new loan is $500,000 and your current value is $1,000,000 so your loan-to-value expressed as a ratio is 50%.
• Why It Matters: The lower your LTV, the less risky you are to lenders. Generally, lenders prefer an LTV of 80% or lower, meaning you should have at least 20% equity in your home. A higher LTV may limit your refinancing options or require you to pay for Private Mortgage Insurance (PMI).

2. Home Appraisal
• What It Is: Lenders typically require a professional appraisal during the refinancing process to determine the current market value of your home.
• Why It Matters: The appraisal value directly affects your LTV ratio and can influence whether you qualify for refinancing. If your home’s value has increased since you took out the original mortgage, your LTV may improve, increasing your chances of qualifying for a lower interest rate or eliminating PMI. If the home’s value has decreased, refinancing may be more difficult or costly.

3. Equity in Your Home
• What It Is: Equity is the difference between your home’s market value and the amount you still owe on your mortgage.
• Why It Matters: The more equity you have, the better your refinancing options. High equity (20% or more) can qualify you for better rates, while low equity (less than 20%) might limit your ability to refinance or require PMI.
Example: If your home is valued at $300,000 and you owe $150,000, you have $150,000 in equity, or 50%.

4. Cash-Out Refinancing
• What It Is: Cash-out refinancing allows you to borrow against your home’s equity, getting cash for things like renovations or paying off debt. Here you obtain a new loan and “walk away” with cash; you have converted your home equity to cash.
• Why It Matters: The more equity you have, the more cash you can take out. Most lenders limit cash-out refinances to 80% of your home’s value (e.g., on a $400,000 home, you could potentially borrow up to $320,000, meaning if you owe $250,000, you could cash out $70,000).

5. Underwater Homes
• What It Is: If your home’s value has dropped below the amount you owe on the mortgage, it’s considered “underwater.”
• Why It Matters: If your home is underwater, refinancing can be difficult because lenders are less likely to approve loans where the home is worth less than the outstanding balance. In this case, government programs like the FHA Streamline Refinance or VA IRRRL (Interest Rate Reduction Refinance Loan) may offer refinancing options with looser equity requirements.

6. Impact on Interest Rates
• What It Is: The value of your home and your LTV ratio influence the interest rate you’ll be offered when refinancing.
• Why It Matters: A higher LTV means higher risk for lenders, which can result in higher interest rates. A lower LTV (more equity) can qualify you for the best rates, as it represents lower risk.

7. Private Mortgage Insurance (PMI)
• What It Is: If your LTV is above 80%, lenders typically require PMI, which protects them in case you default on the loan.
• Why It Matters: If your home value has increased and your LTV drops below 80%, refinancing can eliminate PMI, saving you money on monthly payments. Conversely, if your home’s value has decreased and your LTV is above 80%, you may be required to continue paying PMI or even start paying it if you didn’t before.

Key Scenarios Based on Home Value:
• Increased Home Value: If your home’s value has increased, it can lower your LTV, helping you qualify for better rates, eliminate PMI, or even allow for a cash-out refinance.
• Decreased Home Value: If your home’s value has fallen, refinancing may be more difficult, and you might need to look for specific programs designed for low-equity borrowers.

Cash-out refinancing is a type of mortgage refinancing that allows you to replace your existing home loan with a new, larger loan, and receive the difference in cash. This option is popular for homeowners who want to leverage the equity in their homes to access funds for major expenses such as home renovations, debt consolidation, or other financial goals.
Here’s how it works and what you should know about cash-out refinancing:

1. How Cash-Out Refinancing Works
• New Loan Amount: With cash-out refinancing, you take out a new mortgage for more than what you currently owe on your home. The difference between the new mortgage amount and the balance of your existing loan is given to you in cash.
• Example: Let’s say your home is valued at $400,000, and you owe $200,000 on your current mortgage. If you do a cash-out refinance for $300,000, you would receive $100,000 in cash (the difference between the $300,000 new loan and the $200,000 balance you owe).

2. Eligibility for Cash-Out Refinancing
• Home Equity Requirement: To be eligible for cash-out refinancing, you need sufficient home equity. Most lenders will allow you to borrow up to 80% of your home’s value (some may allow more, depending on the loan type and your creditworthiness).
EXAMPLE: If your home is worth $400,000, you could borrow up to $320,000 (80% of the home’s value). If you owe $200,000 on your current mortgage, you could receive $120,000 in cash.
• Credit Score: You typically need a good credit score to qualify for cash-out refinancing, though requirements vary by lender.
• Debt-to-Income (DTI) Ratio: Lenders will evaluate your DTI ratio to ensure that you can afford the new mortgage payments. A lower DTI ratio increases your chances of approval.

3. Uses for Cash-Out Refinancing
You can use the cash from a cash-out refinance for any purpose, but common uses include:
• Home Renovations: Many homeowners use cash-out refinancing to fund home improvements or repairs, which can increase the home’s value.
• Debt Consolidation: You can pay off higher-interest debt (such as credit cards or personal loans) by consolidating it into your mortgage at a lower interest rate, potentially saving money on interest payments.
• Education Expenses: Some homeowners use the funds to pay for college tuition or other large educational expenses.
• Large Purchases or Investments: You might use the cash for major purchases, business investments, or other financial goals.

4. Benefits of Cash-Out Refinancing
• Access to Low-Cost Cash: Compared to personal loans or credit cards, cash-out refinancing typically offers lower interest rates because the loan is secured by your home.
• Potential Tax Deduction: Mortgage interest may be tax-deductible if the loan is used to improve your home (check with a tax advisor to confirm eligibility).
• Consolidating Debt: By using cash-out refinancing to pay off high-interest debt, you can reduce your monthly payments and simplify your finances, as long as you’re disciplined about not accumulating new debt.

5. Risks and Considerations
• Increased Loan Balance: While you receive cash, your mortgage balance increases, which could result in higher monthly payments and more interest paid over time.
• Closing Costs: Cash-out refinancing involves closing costs, typically 2%–5% of the loan amount, which can be paid upfront or rolled into the loan.
• Longer Repayment Term: Refinancing typically extends the term of your loan (e.g., switching from a 20-year mortgage back to a 30-year loan), meaning it could take longer to pay off your home.
• Home Equity Reduction: Cash-out refinancing reduces your home equity, which could limit your options for future borrowing or selling.

6. Who Should Consider Cash-Out Refinancing?
• Homeowners with Substantial Equity: If your home has appreciated in value, and you have significant equity, cash-out refinancing might make sense to fund major expenses.
• Those Seeking Lower Interest Rates: If mortgage rates have dropped since you took out your loan, you could refinance to a lower rate while also accessing cash.
• Debt-Conscious Borrowers: If you’re using the cash-out to consolidate high-interest debt and can manage your finances carefully, this can save you money in the long run.

Interest rates play a crucial role in refinancing decisions, as they directly impact your monthly payments and the total cost of your loan over time. Here’s how interest rates affect refinancing:

1. Lower Interest Rates Can Reduce Monthly Payments
If interest rates have dropped since you took out your original mortgage, refinancing to a lower rate can lower your monthly payments, potentially saving you hundreds of dollars each month. The size of the reduction depends on how much lower the new interest rate is and the remaining balance on your loan.
Example: Refinancing from a 5% interest rate to a 3.5% interest rate on a $200,000 loan could significantly reduce monthly payments.

2. Higher Interest Rates May Make Refinancing Less Attractive
If interest rates have risen, refinancing might not save you money, especially if your current rate is lower than what’s available. In this case, sticking with your current loan may make more financial sense unless you have other goals (e.g., cash-out refinancing, debt consolidation).

3. Fixed vs. Adjustable Rates
If you currently have an adjustable-rate mortgage (ARM), refinancing to a fixed-rate mortgage can lock in a stable interest rate, protecting you from future rate increases. This is particularly appealing if rates are rising, ensuring your payments don’t go up unexpectedly.

4. Impact on Long-Term Interest Costs
A lower interest rate reduces the total interest you’ll pay over the life of the loan. This can save you tens of thousands of dollars in interest payments, especially if you refinance early in your loan term when most of your payments go toward interest.

5. Rate vs. Loan Term
When interest rates drop, some homeowners opt to refinance to a shorter loan term (e.g., from 30 years to 15 years) at a lower rate, allowing them to pay off their mortgage faster while still saving on interest. Even though monthly payments may increase slightly, the overall interest savings can be substantial.

6. Break-Even Point
The break-even point is the time it takes to recover the costs of refinancing (such as closing costs) through savings from lower interest rates. The lower the interest rate you refinance into, the faster you reach this break-even point.
Example: If refinancing costs $5,000 and you save $200 a month from a lower interest rate, it would take 25 months to break even ($5,000 ÷ $200).

7. Cash-Out Refinance
If you’re doing a cash-out refinance, interest rates still impact the cost of borrowing. While you’ll be accessing your home’s equity, the interest rate on the new loan will affect how much you pay to borrow that cash. If rates are low, it makes cash-out refinancing more affordable.