Refinance

How to Refinance Your Mortgage

Published: February 2, 2024

How to Refinance Your Mortgage

As a homeowner, you’ve almost certainly heard of a refinance. What you might not know is that there’s a lot more to a refinance than simply just getting a new mortgage rate. In this blog, we’ll break down the basics of refinancing your mortgage, how they work, the different types of refinance, and the type of refinance that might work best for you.

What is a Refinance and How Does One Work?

A home refinance replaces your current mortgage with a completely new home loan. When you refinance, your new lender typically uses your new, refinanced mortgage to pay off your existing mortgage. This way, you’re left with one monthly payment that has a new interest rate and principal (or the total balance owed on the loan).

If the following steps sound familiar, that’s because they are! The process for refinancing your home is a lot like your original mortgage process when you first bought your home — this time without the added stress of shopping for your home and competing offers on the home you’re itching to buy.

Application & Locking Your Rate

When you decide to refinance, you’ll need to submit an application with your income, credit score, and any current debts to ensure that you meet the eligibility requirements to refinance.

Once you’re approved, you’ll be quoted with a new interest rate. Just like when you bought your home, you can lock your rate for up to 60 days to ensure you still have access to your quoted rate if mortgage rates rise.

You can also have the option to float your rate; this means that you can potentially access a lower rate if they drop over time, but it also puts you at risk of getting a higher rate if they increase before you close.

Underwriting & Closing

Upon submission of your application and subsequent approval, your new loan will go through underwriting. During underwriting, your lender will cross-reference the financial documents and information you submitted for accuracy. They’ll also require a refinance appraisal to determine the value of the property you’re refinancing. This appraisal is key to a cash-out refinance, which we’ll cover in more detail below.

Assuming you pass underwriting, it’s time to close your loan! Your lender or Loan Originator will send your Closing Disclosure (CD) which outlines all the final figures – including your new interest rate, closing costs, loan amount, and more. When it comes time to close, you’ll review the details of the loan, sign your loan documents, and pay any necessary closing costs. If you’re doing a cash-out refinance, this is when you’ll receive the money owed to you by the lender; but again, we’ll outline cash-out refinances in greater detail a little later.

Different Types of Refinance

So, now that you know how a refinance works, let’s cover the different types of refinances that are commonly used by homeowners. Below, we'll go more in-depth on rate & term refinances and cash-out refinances and expand on the ways that these two options work.

Rate & Term Refinance

The most popular type of refinance — and what you probably first think of when you think about a refinance — is a rate & term refinance. True to the name, this kind of refi simply updates the interest rate and the term (or the repayment length of your loan).

Homeowners choose to get a rate & term refi when they want to lower their monthly mortgage payment. This makes the most sense for you if interest rates are significantly lower now than they were when you initially bought your home.

Another option with a rate & term refinance is to shorten the term of your loan. This typically leads to a higher monthly payment but can significantly lower the total amount of interest paid on your loan.

Cash Out Refinance

If you’re looking to tap into the equity you’ve earned in your home to help pay for a home project or consolidate another debt, you might consider a cash-out refinance.

When you get a cash-out refinance, you essentially replace your existing mortgage with a new loan that’s larger than your current loan balance. The difference between your existing mortgage balance and your new mortgage is the amount of cash you receive.

It's crucial for homeowners to understand that the larger loan amount means higher monthly payments and increased overall interest costs over the life of the loan. Therefore, careful consideration and thorough financial planning are essential before opting for a cash-out refinance to ensure it aligns with their long-term financial goals.

How to Know if a Refinance is Right for You

Now that you know the basics of refinances, how do you know if a refinance is right for you? Consider the points below. If one of these situations resonates with you, then a refinance might be on the cards for you!

Reduce Your Monthly Mortgage Payment

The most common reason homeowners refinance their homes is to reduce their monthly mortgage payments with a lower interest rate. Before you refinance to lower your monthly payments, consider your break-even point after considering closing costs. If you think you’ll only live in and/or own this property for another couple of years, it might cost more to refinance than it would to keep your existing mortgage.

Utilize Your Home Equity

Your home is an investment that gives back as much or more than what you put into it. If you want to complete a kitchen remodel, pay off existing debt, or generally get some funds for a one-time expense, you can use a cash-out refinance to tap into the equity you’ve been building since buying your home.

Change the Length of Your Loan

If you are comfortable paying a higher monthly mortgage payment to reduce the amount of interest you pay over the life of your loan, you can get a rate & term refinance to shorten the term of your loan. If you shorten your loan from a 30-year to a 15-year, you’ll pay more upfront but less over time since you’re accruing less interest.

Change Your Loan Type

If you have an adjustable-rate mortgage and want to switch to a fixed-rate mortgage to have a more stable monthly payment, a rate & term refinance is a great option for you. The same can apply if you have an FHA loan and want to switch to a conventional, a conventional loan and you want to utilize your VA benefits, or generally see another loan program that might work best for your individual situation. It’s a great idea to consult with your UMortgage Loan Originator to get an expert’s opinion when changing your loan type.

Eliminate Mortgage Insurance

If you financed your home with an FHA loan or your down payment was less than 20%, you were required to lump Private Mortgage Insurance (PMI) into your monthly mortgage payment. Often, mortgage insurance can account for up to $200 of your monthly payment — those dollars really stack up over time! By refinancing to a conventional loan from an FHA loan or refinancing after having reached 20% equity in your home, you can refinance to eliminate your PMI payments from your mortgage.

There are plenty of great reasons to refinance your mortgage and a plethora of different types of refinances that can fit your unique financial situation. Your situation is unique, so if you’re still wondering what type of refinance might be best for you, reach out to your UMortgage Loan Originator for a personal consultation.

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The BasicsDecember 18, 2024

How to Read Your Loan Estimate

Getting your loan estimate is an essential step in the homebuying or refinancing process. What’s even more essential, though, is knowing how to read your loan estimate. We’ve seen plenty of clients work with other lenders and get hit with extra fees that were hidden in plain sight on their loan estimates. Reading your loan estimate doesn’t have to feel overwhelming. This guide will break it down step-by-step so you can understand every detail and feel confident about your mortgage. What is a Loan Estimate? A loan estimate is a detailed document provided by your mortgage lender that outlines all the different details and fees that will go into your mortgage once approved. It details things like your rate, the type of loan you have, what your monthly payment will be, an estimate of your closing costs, and much more. Remember, these figures are estimates. They can change if your mortgage rate, home price, or down payment changes. It’s important to work alongside your loan originator to understand all of the costs that go into your mortgage to make sure you know what you’re paying for and get the best deal possible. The Different Sections of Your Loan Estimate When you receive your loan estimate, you’ll notice that it’s broken down into a few different sections. It’s important to know what these sections cover and what they mean to avoid hidden fees and make sure your mortgage is structured the way you want it to be structured.Below are some of the sections you should review in detail and the different sections you’ll see on each page. Page 1 - Loan Terms Page 1 of your loan estimate summarizes the basic details of your loan. This includes your loan amount, interest rate, monthly principal & interest, prepayment penalty, and balloon payment. At the very top of the page, you can see whether you locked your rate, the length of your loan, and the type of your loan. As you review this section, keep in mind the things you agreed upon with your loan originator. Things like whether you locked your rate, what type of mortgage you got, and whether or not your rate can or cannot increase after closing. Page 2 - Closing Costs Page 2 of your loan estimate will cover all of the fees that make up your closing costs. The only thing on this page that’s controlled by your loan originator is section A: origination charges. This section includes charges like application fees, underwriting fees, or points to ‘buy down’ your rate. These are the only fees your loan originator controls, so review them carefully to ensure they align with what you discussed. The other sections are the services that you can and cannot shop for, taxes and government fees, prepaid interest, taxes, and insurance, initial escrow payment due at closing, and other costs. At the bottom of this page, you can see your estimated cash to close. This is the amount of money you’ll need to pay to close your loan and get the keys to your new home. It combines the fees outlined on that page with your down payment and accounts for paid fees like a deposit, seller credits, lender credits, and other things that help lower your total closing costs. Page 3 – Additional Information Finally, on page 3, you can see a few pieces of information specific to your loan. At the top of your page, you can find information about your lender and loan originator. Beneath that are figures that you can use to compare this loan estimate with any others you receive. Finally, at the bottom of the page are details about your appraisal, loan assumption if you sell or transfer the property to someone else, late payment details, refinance qualification, and servicing. Servicing lets you know whether your lender will transfer servicing of your loan to someone else. This is important to know—if your lender intends to service the loan, you will pay that lender each month. If they plan to transfer service, you will need to pay a different lender. You can confirm all of those payment details with the lender at the time of your closing. How to Use Your Loan Estimate to Your Advantage Understanding every section of your loan estimate will help empower you to shop around for the most affordable mortgage available with terms that fit your short- and long-term financial goals. It will also protect you from different hidden fees that some lenders utilize to make a loan look more affordable than it actually is. The most common is discount points that allow a lender to give you a lower mortgage rate than the market allows. If you think your quoted rate is too good to be true, make sure to check section A on page 2. Discount points aren’t always bad, but it’s important to know whether you’re paying them and if it makes sense to pay discount points before you sign the dotted line. When you work with a UMortgage Loan Originator, you’ll unlock expert guidance to walk you through the entire mortgage process, including your initial loan estimate and your more detailed closing disclosure. You can also trust that you won’t get hit with any deceptive fees—just a mortgage that allows you to unlock the life-changing benefits of homeownership. Want to get started? Follow this link and fill out the form to get connected with a Loan Originator in your area today!

RefinanceNovember 12, 2024

How a Cash-Out Refinance Can Help Fund Your Holiday Spending

The holiday season is coming up, and for many, this time of year can put families through financial strain. Between gifts, travel, and festive gatherings, the expenses can quickly add up, leaving some feeling stretched thin. For homeowners, a cash-out refinance can be an effective way to access the equity in their homes, providing extra funds to cover holiday costs without relying on high-interest credit cards or personal loans. By using the equity they've built, homeowners can enjoy a more relaxed and financially stable holiday season. What is a Cash-Out Refinance and How Does One Work? A cash-out refinance allows homeowners to replace their current mortgage with a new loan that provides extra funds by tapping into the equity homeowners have built in their property. Essentially, homeowners can "cash out" a portion of their equity to use however they like—whether it’s to pay off high-interest debt, fund renovations, or, in this case, cover holiday expenses. This process works by allowing homeowners to borrow against their home equity, which is the difference between the home’s appraised market value and the remaining mortgage balance. By taking out a larger loan, the borrower receives the excess in cash after paying off the original mortgage. For a clearer picture of how this can work, use UMortgage’s Refinance Calculator to see what a cash-out refi might look like for you. For a more in-depth quote, fill out this form to connect with a UMortgage Loan Originator or reach out to your existing UMortgage partner. Home equity is a valuable asset that accumulates over time as mortgage payments are made and property values appreciate. With a cash-out refinance, homeowners can leverage this value without selling their property, providing access to funds when needed most. The Benefits of a Refi for Debt Consolidation & Holiday Spending While credit cards might seem like a tempting way to cover holiday expenses, the high interest rates can quickly make seasonal spending hard to manage. According to the Federal Reserve, the average credit card interest rate is currently around 22.76%, which can lead to a cycle of unmanageable debt. “There’s a lot of high interest out there, and people are carrying more debt than they’ve ever carried,” says Jimmy Hobson, UMortgage’s National Sales Leader. “A cash-out refinance not only helps you avoid this kind of debt but also gives you a way to tap into your home’s equity that you’ve already built through monthly mortgage payments.” With a cash-out refi, instead of taking on even more debt, you’re using the money you’ve already invested instead of relying on high-interest credit cards or personal loans. After you’ve closed your refinance, you'll get some breathing room before your first mortgage payment, typically due on the first of the month following a full 30 days after closing. So, if you close on November 14th, you won’t make your first mortgage payment until January 1st. This means you could benefit from having a month without a mortgage payment, freeing up extra funds that can be helpful for holiday spending or unexpected expenses. How to Know You’re Eligible for a Cash-Out Refinance Before you start planning your refinance, it’s important first to assess your eligibility and whether it makes sense for your current financial picture. Here are some things to consider: Assess Your Home Equity You should start by calculating your home equity to determine if you qualify for a refi. Your equity is the difference between your home’s current market value and what you still owe on your mortgage. You’ll need an appraisal to determine your home’s market value. A UMortgage Loan Originator will be able to connect you with a reliable appraiser in your area to help you determine the equity owned on your home. Reviewing Your Long-Term Goals There are many benefits to a refinance, but ultimately, you should only do it if it fits your long-term goals. Would it be more beneficial to use your home’s equity to invest, make home improvements, or save for the future? Taking out funds now can impact your mortgage balance and monthly payments, so consider how this aligns with your plans and whether it will keep you on track for achieving financial stability or growth. Get Connected with a UMortgage Loan Originator A UMortgage Loan Originator is your key to personalized mortgage advisory that puts your long-term financial health first. Once you get connected with your LO, they’ll walk you through every step, from eligibility to planning and ultimately unlocking your home’s potential to give you a smart, effective option for covering seasonal expenses. Follow this link and fill out the form to get connected with a UMortgage LO in your area. A cash-out refinance allows you to rely on the investment you've already made in your home, helping to cover seasonal expenses while keeping your financial health in check. Whether for gifts, travel, or end-of-year projects, using your home’s value wisely can make all the difference in enjoying a stress-free holiday season. Follow the link above to see if this option will work for you this holiday season!

The BasicsOctober 11, 2024

Spruce Up Your Fall Open Houses With This Checklist

Autumn is the perfect time to create a warm, welcoming atmosphere that invites buyers to envision themselves living in the home they're visiting. As the weather cools and the leaves start to turn, real estate agents have a unique opportunity to set the mood for open houses by adding a touch of seasonal charm. With just a few simple touches, you can help potential buyers feel at home while also reminding them of important fall maintenance tasks. Here’s a checklist to give your open houses that cozy, autumnal vibe while also emphasizing the importance of seasonal upkeep. 1. Set the Mood with Fall-Scented Candles or a Simmer Pot When potential buyers walk into a home, the first thing they’ll notice is the atmosphere. Scents are incredibly powerful, so setting the right mood with fall-scented candles or a simmer pot with seasonal spices is a must. Opt for warm, inviting aromas like cinnamon, pumpkin spice, allspice, or cedarwood. These scents create an immediate sense of comfort and coziness. Tip: Choose subtle, natural fragrances to avoid overwhelming guests. You want the scent to be pleasant, not overpowering. For a fall-scented simmer pot, slice an apple, an orange, and a lemon and add to a saucepot. Sprinkle them with a tablespoon of nutmeg and ground ginger and add up to 5 cinnamon sticks. Cover with water, bring to a boil, and lower the heat to simmer for as long as desired. 2. Incorporate Seasonal Decor Fall is all about beautiful colors and textures, so why not bring those elements into your open house? You don’t have to go overboard—just a few tasteful touches will do the trick. Think decorative pumpkins, a simple wreath on the door, cozy throw blankets, and vases filled with autumnal foliage or wheat stalks. Tip: Neutral tones and natural materials, like wood and cotton, blend well with most interiors and help potential buyers focus on the home itself, not just the decor. 3. Create Cozy, Inviting Spaces Fall is the season of warmth and relaxation, so highlight areas of the home that encourage comfort. Stage the living room with plush pillows and soft throws or set up a reading nook with a comfy chair and a stack of books. If the home has a fireplace, make sure it’s clean and staged, and consider lighting it for the event (if it’s a gas fireplace) to showcase how the space could feel on a chilly evening. Tip: Dim lighting and warm, ambient lamps create a relaxed atmosphere that makes the space feel more intimate and inviting. 4. Highlight Outdoor Spaces with Seasonal Touches Don’t forget about the exterior! Add seasonal touches to the front porch or backyard to make outdoor spaces shine. A simple pumpkin arrangement or a few pots of mums can make a big difference. Clean up leaves and debris to ensure the yard looks well-maintained. Tip: Don’t forget to highlight the potential for cozy outdoor living. Adding a fire pit, some string lights, or a patio heater can inspire buyers to imagine gathering outside even in cooler weather. Seasonal Maintenance Tips to Share with Buyers In addition to creating a cozy atmosphere, fall is an important time for homeowners to tackle seasonal maintenance tasks. By offering these tips during an open house, you can help buyers think ahead and show that you’re a knowledgeable resource. 1. Turn Off Outdoor Spigots and Drain Hoses One of the most important fall tasks is to turn off outdoor spigots and drain hoses before freezing temperatures arrive. Remind buyers that failing to do so can lead to burst pipes, which can cause costly damage. Tip: Suggest purchasing insulated faucet covers to protect outdoor water sources during the winter months. 2. Clean Gutters and Downspouts Fallen leaves and debris can easily clog gutters and downspouts, leading to water damage when the rain starts. Make sure buyers are aware of this essential task to prevent overflow or ice damming during winter. Tip: A gutter guard can help reduce the amount of debris that accumulates, saving time and effort in the long run. 3. Trim Dead Limbs and Clean Up Spent Plants Fall is the perfect time to trim dead or damaged tree limbs to prevent them from breaking under the weight of snow or ice. It’s also a good idea to clean up spent plants and flowers from garden beds to give the yard a tidy appearance and prepare for next spring. Tip: Encourage buyers to save time in the spring by planting bulbs in the fall that will bloom early next year, like tulips or daffodils. 4. Inspect and Seal Drafty Windows and Doors With cooler weather coming, now is the time for homeowners to check windows and doors for drafts. Encourage buyers to inspect the home’s seals and weatherstripping to prevent heat loss and save on energy bills. Tip: Window insulation kits and door draft stoppers are affordable and effective ways to block cold air from seeping in. Adding fall vibes to your open houses is more than just setting the mood—it’s about helping potential buyers feel comfortable, welcome, and excited to imagine themselves living in the space. By combining seasonal decor and cozy touches with important homeownership tips, you’ll not only create a memorable experience but also position yourself as a trusted resource for your prospective buyers.