I’ve shared a lot about our first home purchase from the starter home purchase price to the easy ways we were paying it off faster to drop PMI.
Now I’m sharing the next phase in our home ownership journey: our mortgage refinance.
Our Home Refinance Trigger
When mortgage rates dropped to low levels in the middle of the pandemic during 2020 we decided it was finally time to start a refinance of our loan.
We bought our home in 2016 and had been paying $99 a month in mortgage insurance premiums every single month since then. We had not found an opportunity that made since to refinance previously because we had a decent rate at 3.625%. The few times I looked into refinancing the interest rate was not low enough to give us any financial benefit.
Once interest rates started dipping below 3% I knew it would be a good time to refinance for us because we might finally be able to get a deal good enough to break even from closing costs within a reasonable time frame.
While the pandemic of 2020 is tragic in many ways it was a great financial opportunity as far as interest rates on mortgages went.
Shopping Mortgage Refinance Offers
Once I wanted to refinance I knew it was time to shop around and find the best mortgage refinance offer.
To compare the offers I made sure to look at several things:
- the new interest rate compared to my rate
- the new payment compared to my payment
- the total amount of closing costs
- when I would break even based on closing costs
Those were the most important factors. It makes no sense to refinance your mortgage if you aren’t getting a better deal that will start saving you money within a reasonable time frame, especially if the home is not your “forever” home.
I decided that I wanted the interest rate to be 2.75% and less than $2,500 in closing costs, and preferably a 15 year loan. I set out to find just what I wanted!
I began with Rocket Mortgage / Quicken Loans because they were constantly advertising to me and I’d previously reached out and their loan officer straight up told me it wouldn’t make sense for us (I valued the honesty instead of trying to make a sale). However this time I got a different person and it was not a pleasant experience. They were the first I checked with but the rate was higher than I wanted (I wasn’t refinancing who was pushy and would not get the rate below 2.99% with over $4,000 in closing costs. When I explained their costs were higher than I wanted the sales person got pushy and tried to explain interest rates to me like I didn’t understand how much money I could be saving. I already knew I wasn’t going with them based on having the worst quote but that experience was rude but unfortunately likely works on people who aren’t as savvy who then end up paying more.
Because that first check on my credit had opened my mortgage shopping period I then checked with every single bank I could in my city as well as local credit unions. I figured if the larger national mortgage companies weren’t providing great service then I should turn to banks that were known for doing a better job.
I got about 10 different quotes and some got close to what I wanted but not quite. I went ahead and checked with the bank I already used for business checking because it’s a regional bank who’s been great to deal with so far. They ended up giving me the best closing cost quote: just $2,000. They also agreed to lock me in at 2.75% and wouldn’t go forward with the paperwork unless that was a sure deal. At the time I contacted them rates were bouncing back up to 3% but they assured me that they were there to get me what I wanted … and they did!
Our Mortgage Refinance Experience
Because of the low closing costs and great rate I went with Iberia Bank for my mortgage refinance. I figured they would likely sell my loan to a larger servicer but the deal for my mortgage was just too good to pass up.
Because I banked with Iberia already they allowed me to waive the appraisal of our home for the refinance. I’m not sure if that is 100% the reason or if it was also because of the pandemic or that they could look at real estate websites and conservatively estimate our house at an amount that would have us past 80% loan to value ratio.
We didn’t have to do an appraisal but we did have to still provide a lot of paperwork.
The video above shows the things you have to provide in order to refinance out of your FHA loan to a conventional mortgage during a refinance. Here are the things we had to provide during our refinance:
- two years of tax returns
- two years of W-2s
- last two paycheck stubs
- current mortgage statement
- current insurance information
- credit checks
- credit check explanation (for mortgage shopping)
- approval for no appraisal (you might have to do an appraisal)
- explanations for anything confusing (my work had to provide one)
- proof of identity
Even though you already “own” the home you are creating a new mortgage so it’s very much like the first time you buy a home. You have to provide a lot of paperwork and “prove” yourself in order to qualify. They want to know that you have the income and stability to pay this new loan.
Our refinance experience was interesting because they were so bogged down and busy during this period because many, many people were refinancing. We actually would go long stretches without hearing anything back from the bank. At points it felt like they had forgotten us but I knew they were overwhelmed and were working on it.
In the end the underwriting and everything went smoothly and we closed on our refinance in April 2020.
Our New Mortgage Details
Our new refinanced mortgage is pretty great in my opinion and it’s set up to let us pay our home off even faster than we had originally planned.
Here are the details for our new mortgage loan:
- New loan amount: $142,000
- Interest rate: 2.75%
- Loan term: 15 years
- Monthly principal & interest: $963.64
- Monthly payment: $1,292.96
- NO PMI
This fit all of the requirements I wanted when I set out to refinance our mortgage.
The break even for us was just under two years and we knew we planned to stay at least that long and potentially keep this house forever as a rental. With that in mind it was very exciting to be saving so much money in the long run and paying off this home much faster.
As you can see from the most recent mortgage payoff video in July 2020 we are already paying off the mortgage at a much faster rate.
Our new mortgage payment is $93 per month more than we were paying with our original loan each month yet we are more than doubling the amount we are paying toward our principal balance each month.
With this new refinanced mortgage loan we are starting off with our first payment sending $638.22 to reducing the principal of the loan and that number will only increase over time. In just 9 months we will be sending over $650 per month to reduce the loan balance.
This mortgage refinance has drastically increase how fast we will pay off this loan and reduced the amount of interest we will pay. Even if this is not our home forever I’m thrilled to see my money being used for equity instead of PMI and interest!