Refinancing your home: Why refinance and the steps to take

You may have heard refinancing a home is a good idea when interest rates are down or you want to do some home improvements. Find out from some local experts about why you should consider refinancing, when might be a good time and where to go for more information about refinancing.  



Andrea Eickhoff, vice president of real estate lending at Olmsted National Bank in Rochester, says, “There are multiple reasons why a client would consider a refinance.” Eickhoff explains the three most common types of refinances are refinancing for a lower interest rate, for a different term (either shorter or longer), or to receive cash-out. To receive cash-out, she notes the homeowner taps into the equity of their house to use the funds for debt consolidation, home improvement or college expenses.

“There are two main reasons people will consider refinancing their mortgage loan,” notes Alan Holtan, real estate lending adviser at First Alliance Credit Union in Rochester. “One reason is to reduce their monthly payment to improve their cash flow through refinancing to a lower interest rate. Another reason is to reduce the term of the mortgage so the home will be paid in full sooner. For example, typically someone with a 30-year mortgage will refinance to a 15- or 10-year term.”



“Whether it is a good time or not to refinance could honestly be a different answer for every client. That is why it is important to sit down with your loan officer to review your personal scenario, calculate the costs versus benefits and determine if the refinance is a good fit for you,” Eickhoff adds. 

Holtan notes, “A good time to refinance is when the current interest rate is lower than the interest rate you are currently paying on your loan. A helpful rule-of-thumb is if you can reduce your interest rate by 1 percent, refinance. The size of your mortgage will impact that decision too, so check with a trusted mortgage professional about how refinancing will impact your financial situation.”



“Interest rates are still very good in today’s market, absolutely,” says Eickhoff. “The anticipation of what the rates may do in the future is an unknown factor and all depends on the economy.”

Holtan points out, “Interest rates are very good right now, generally around 4.5 percent. If you took out your mortgage 10 years ago, you’re probably sitting at an interest rate of around 6 percent, meaning you could be a good candidate to refinance. Unfortunately, there is no crystal ball to tell us if interest rates are going to increase or decrease at any given time. So if you’re considering refinancing, it’s best to make an informed decision quickly, since there is no guarantee the rates will stay favorable to your specific situation.”



“If you are considering a potential refinance, or have questions on refinancing, I would recommend reaching out to your local real estate lender or loan officer,” suggests Eickhoff. “They specialize in home financing and will be able to guide and direct you with your specific scenario.” 

Holtan suggests that if you’re unsure about whether or not refinancing is a good option for you, it’s a good idea to talk with a trusted mortgage professional. He says the majority of financial institutions in Rochester offer mortgage services, including First Alliance Credit Union. “A trusted mortgage professional should be willing to explore all your refinancing options to help you meet your goals,” Holtan adds.

Keep in mind that you will likely have to pay closing costs again when refinancing your mortgage loan, because you are essentially taking out a new mortgage. It’s important to take these additional costs into consideration when deciding to refinance your mortgage.



Alison Rentschler is a writer and editor living in Rochester.