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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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.

RefinanceSeptember 24, 2024

Your Guide to VA Interest Rate Reduction Refinance Loans (IRRRLs)

Understanding VA Interest Rate Reduction Refinance Loans (IRRRLs) If you're a military homeowner with a VA home loan, you may be able to lower your monthly payments through a VA Interest Rate Reduction Refinance Loan (IRRRL). A VA IRRRL, often called a "VA Streamline Refinance," is a simplified way for veterans to refinance their existing VA-backed home loan. This program allows you to replace your current VA loan with a new one, typically offering a lower interest rate or more stable payment terms. Below, we’ll outline the benefits you can unlock with an IRRRL, the requirements to meet before you qualify for an IRRRL, and what the process looks like to unlock these savings. Benefits of a VA IRRRL With an IRRRL, homeowners can unlock countless benefits to save money both immediately and in the long term. The primary benefit of an IRRRL is to replace your existing mortgage with one that has a lower interest rate, thus lowering your monthly mortgage payment and interest paid over the life of the loan. Unlike traditional refinances, IRRRLs require very minimal documentation, making the process move a lot quicker than a conventional refi. Homeowners can often get an IRRRL without paying any cash out of pocket by rolling closing costs and fees into the loan balance. This means you’re saving money from your first new payment. If you bought your home with a VA loan, you’re probably familiar with the VA funding fee. The good news with an IRRRL is that when you refinance, non-exempt borrowers only have to pay a 0.5% funding fee. This fee can also be added to the loan balance, meaning no money out of pocket at closing. Finally, a VA IRRRL doesn’t use any of your VA loan entitlement, ensuring that you’re set up for success if you have entitlement remaining when the time comes to buy your next home. How to Know When You’re Ready for an IRRRL Before you get an IRRRL, you need to check the three boxes outlined below to make sure that you maximize these benefits: 210 Days Since the First Payment on the Original VA Loan First and foremost, your closing date for your new loan needs to be at least 210 days after you made your first payment on the loan that you’re refinancing, and you must have made at least 6 consecutive monthly payments on that loan. These requirements are set by law to protect you from predatory lending practices. Qualify for a Rate at Least 0.5% Lower Than Your Current Rate Second, the interest rate you qualify for needs to be lower than your existing interest rate by at least 0.5%. Refinancing includes additional costs such as closing costs, title fees, and other associated charges. If the interest rate reduction is too small, the monthly savings might not be enough to recover these upfront costs in a reasonable time frame. By waiting for a 0.5% or greater rate reduction, you increase the likelihood that the savings from refinancing will recoup these costs relatively quickly. Recoup Your IRRRL Costs Within 36 Months That takes us to the final and most important requirement. To make your IRRRL worthwhile, you need to make sure you recoup these additional costs via your new, lower monthly payment in 36 months. These three requirements act in tandem with each other. Rates take a combination of economic conditions and time to drop by at least 0.5%. The more you reduce your interest rate, the faster you’ll recoup the savings unlocked with your IRRRL. With all things related to your mortgage, it’s important to work with a Loan Originator who will help you get the most out of your IRRRL and can find a solution that keeps more of your money in your pocket. That takes us right into step 1 of the IRRRL process: working with a loan originator who can guide you through your IRRRL without slamming you with unnecessary added fees. The IRRRL Process: Streamlined Refinancing Getting an IRRRL is generally simpler than a regular refinance. Below, we’ll outline the easy, 6-step process for getting an IRRRL: Find an experienced VA loan originator: By working with an experienced LO, you will ensure that you’ll receive honest and straightforward financial advice with a personalized IRRRL experience that provides terms that work best for you and you alone. Provide basic information: You'll need to certify that you previously occupied the home, but current occupancy isn't required. Skip the appraisal: In most cases, no new appraisal is needed for an IRRRL. Minimal credit checks: While the VA doesn't require a credit check, some lenders may still request one. No income verification: Unlike regular refinances, IRRRLs typically don't require income documentation. Close on your new loan: Once approved, you'll sign the new loan documents and start enjoying your lower payments. Remember, while IRRRLs are designed to be straightforward, you need to ensure that the new loan provides a tangible benefit, such as lower monthly payments or a more stable rate structure. Taking advantage of a VA IRRRL allows you to save money on your monthly mortgage payments while enjoying a simplified refinancing process. If you're interested in getting a free quote from a VA loan expert, fill out this form to get the ball rolling on your mortgage savings!