You love your home, but you might not love everything about it. Maybe your original interest rate is higher than you would like, and you’d like a lower one. Maybe you would like to lower the years left on your current mortgage. Maybe you want to do some work on the house, but you don’t have the cash for the remodel of your dreams.
If you fall into any of those categories, you might be in the market for mortgage refinancing. It can be tricky to decide when to refinance your home, however, and that’s where the team at Bison State Bank have your back.
Read on to learn more about when to refinance your home, or reach out to us and speak directly with a home loan officer to begin your refinancing journey.
What is refinancing?
Simply put, refinancing means you’re trading in your current mortgage for a newer one. This newer rate can vary from your current one in several ways, including a different interest rate or change in the years left on your loan.
The refinancing process
Refinancing your home is similar to buying a home, but much simpler in many cases. Here’s a breakdown of the steps you will take when refinancing your home.
Determine your goals
Before deciding when to refinance your home, you need to think about what you want out of your refinancing. There are different options available depending on your situation. Some common reasons to refinance include:
- Lowering your interest rate
- Lowering your monthly payment
- Adjusting your loan term length
- Cashing out your equity
Applying for your new loan
Just like with applying for your old mortgage, you need to find a trusted home loan lender and apply for your refinance loan. You’re not required to work with your previous lender, and if you choose a new lender, your old lender pays off your current loan, ending your relationship.
Once you’ve settled on a lender for your refinanced mortgage, you’ll give them the same information you had to give when applying for your current mortgage. The lender will review your income, assets, debt, and credit score to determine your best path forward.
The mortgage officers at Bison State Bank always prioritize your satisfaction. We take the time to understand your goals and tailor your new loan around those goals so that you can take the first steps to a better future.
Underwriting your new loan
After submitting your application and receiving approval, your lender begins the underwriting process on your new loan. At Bison State Bank, our underwriting team runs your application through an automated underwriting system. This ensures we get the best loan-to-value on your refinancing and that you get the best rates available.
Do you need an appraisal?
Typically during the homebuying process, your lender will want an appraisal to determine the fair market value of your home. These appraisals add to your closing costs and can make your loan rate rise or fall, depending on the physical inspection and the comparison to other properties in the area.
For homeowners with FHA, VA, or USDA loans, your lender may waive the appraisal altogether. You may still want an appraisal to determine the value of your home, especially if the housing market has grown since you bought or if you’ve made home improvements. However, that appraisal can actually hurt you in the long run if your home is valued lower than it was when you first purchased it.
Our automated underwriting system at Bison State Bank is a great guide for refinancing appraisals. Our goal is to ensure you’re getting the most out of your refinancing, and if we don’t think you need an appraisal, that can save you money both now and in the future.
Once underwriting is complete, all that’s left is closing on your new loan. Similar to your first loan, your lender will send you a closing disclosure a few days before the closing date. That way, you see the final numbers well in advance of closing and can address any issues.
Most people don’t want to bring money to closing. After all, you’re trying to save money with your refinance, not spend more! That’s why our loan officers and closing specialists do everything we can to ensure you don’t owe anything at closing on your refinanced mortgage. In fact, on a conventional loan you can receive up to $2,000 back without it being considered a cash-out loan.
Right of rescission
One of the major differences between closing on your first mortgage and a refinanced loan is the right of rescission. On a refinanced home mortgage, you have the right to cancel your mortgage contract up to three business days after closing.
This protects you in case any major life events—like medical emergencies or loss of jobs—occur, and you won’t be able to pay the new loan.
Common refinancing questions
Here are a few common questions clients ask about refinancing and answers from our home loan experts.
Why should I refinance my home?
There are many different reasons why homeowners consider refinancing. Here are just a few examples:
- Lower interest rates: For homeowners unsatisfied with their current interest rate, a refinance can lower their monthly payments by reducing their interest rate. This is beneficial if your credit is better now than when you first bought your home or the housing market is producing better rates.
- Change term length: If you originally signed a 30-year mortgage but would like to reduce the years left on your loan, a refinance can reduce your term length. This will also reduce your total interest paid, saving you money over the life of your loan, but that will raise your monthly payment.
- Reducing your payment: Refinancing to a longer term can actually reduce your total monthly payment. You’re giving yourself longer to pay off the same amount of debt, so this is a good option for homeowners who have problems paying their monthly bill. This option will ultimately result in more interest paid over time, but it will reduce how much is owed monthly vs. the life of the loan.
- Get cash in hand: By refinancing for more than you currently owe on your home, you can receive the difference as cash to use however you see fit. This cash can cover the cost of home improvement, which further increases your equity, or it can be used to pay off other debts with higher interest rates.
The most important thing to keep in mind when considering refinancing options is your personal goals. With clear goals for both now and the future, we’ll help you get the most out of your home loan.
Can I combine refinancing options?
Yes! Refinancing is a flexible system dependent on your current financial situation. If you would like to both lower your interest rate and reduce your monthly payments, or if you want to shorten the term of your loan while lowering your interest rate, those are all viable options. You can even combine a cash-out refinance with another type of refinancing to lower your monthly payments or reduce your interest rate.
Can I refinance with a mortgage in escrow?
When you refinance your mortgage, the previous mortgage is completely paid off and replaced with the new loan. But when your mortgage is in escrow, what happens to the taxes and insurance money collected in the account?
If you are refinancing with your current lender, that escrow account may stay intact. It would just transfer to your new loan. If you’re working with a new lender, however, your escrow account will be closed, and you will receive a check for the remaining balance within 30 days of closing from your previous lender.
The timing of this closure can be tricky, depending on many factors. Keeping track of these factors is difficult, so working with an experienced lender, like our mortgage professionals at Bison State Bank, ensures all of these factors are taken into consideration.
How will I know when to refinance my home?
This is a complicated question. Everyone is in a different financial situation, and everyone’s home is a little different. It’s not only hard to know when to refinance your home but also what kind of refinancing will benefit you the most.
That’s why you need a trusted ally in your corner. Our experienced home loan specialists at Bison State Bank want to serve you in the most honest, transparent way possible. We pride ourselves on our founding principles of honesty, integrity, and experience, and we apply those principles to every homeowner we work with.
Let Bison State Bank handle your mortgage refinancing
Our experienced mortgage professionals are passionate about helping our clients take their first steps toward a better future, and knowing when to refinance your home is one of those steps.
The loan officers at Bison State Bank won’t pressure you into a loan that’s not suitable for your needs. We are professionals in this industry with the know-how to fit each client with a tailored loan solution. We strive for customer satisfaction, and we’re not satisfied until you are.
Contact us today to see how our approach of honesty, integrity, and experience helps you find the right home loan solutions.
A special thank you to our Underwriter, Katie Southard, for providing her expertise on this topic.