Refinancing your home is a big decision! It’s important to know what potential benefits may come with a home refinance.
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If you read How We Became Landlord At Age 22 As College Student, you will see that had a high and scary interest rate for our 2nd property/condo. The reason for this was that I had some surprising credit issues.
When COVID-19 happened, interest rates dropped significantly. Many people started to buy real estate and/or refinance their homes.
We noticed these fantastic interest rates and decided to refinance our condo! (We were also fortunate to buy and build our third property during the low-interest rate time).
Compelling advantages/reasons to refinance your home
- Lower interest rate.
- Pay off the home mortgage faster.
- Get rid of home mortgage insurance (PMI).
- Lower monthly payment.
- Can take cash out to pay off high-interest debt, use for a new property down payment, etc.
- Pay off loan faster (IE – change from a 30-year to 15-year term).
- Switch from an adjustable mortgage rate to a fixed rate.
We chose to refinance primarily to obtain a lower interest rate, lower monthly payment, and wipe out mortgage insurance. We did not pull any cash out for our refinance.
I would like to share our refinance experience for our second property/condo. Side note: we refinanced while still living there, so it was our primary residence.
Our refinance process was easy! We shopped around and found three different lenders to give us a quote. Next, we would review and go with the best quote.
We highly recommend finding at least three different lenders to compare and negotiate with to get the best deal. One of the lenders told us, “ I would be willing to cut my commission to give you the best deal.”
After choosing the one we liked best, we started submitting documents. Below are the most common required documents when applying for a home loan or refinance.
Most common documents required for underwriting:
- 2-year tax returns
- Pay stubs, W-2s, or other proof of income
- Bank statements and other assets
- All of your debt monthly payment history
- Credit score, credit history
- Gift letters (if someone helps you with down payment etc.)
- Photo ID, SSN
- Rent history if you are renting, mortgage/HOA history if you are a house owner
- House insurance company if you have a preference, usually it will cheaper when you bundle with car insurance.
- If you have tenants, include rent payment history & current lease agreement.
Back to our refinance process, the lender next sent out an appraiser to check our property and give an estimated value based on house conditions and the market.
Because the value of the home increased, we could avoid mortgage insurance when refinancing by having 20% equity in our condo.
We could have pulled out equity but decided to leave it all in there. Our mortgage insurance, or PMI, went from around 100 dollars to 0 dollars a month!
The interest rate dropped from around 5% to 3%, down 2%! Our monthly mortgage payment used to be approximately $1200 but went down to around $1000 (with HOA fees), saving us around $200 a month!
We paid nothing at closing. The refinance closing costs were added to our loan, and our total loan amount became about $161,000.
In Conclusion
Below is a chart to sum up our refinance experience with numbers.
| Before Refinance | After Refinance | |
| PMI | $100 | $0 |
| Interest Rate | 5% | 3% |
| Total Monthly Payment (with HOA) | $1,200 | $1,000 |
We felt so blessed after finishing the refinancing process and know it will be worth it in the long run. Our next step was purchasing our third property and renting out our condo.
We leased it out for $1,300, giving us around $300 monthly in cash flow! Having that type of investment property has been an enormous blessing.
We hope that our refinance story can help you better understand the process a little better and the benefits that can arise by doing a refinance.
Feel free to share other benefits or stories you have doing a refinance in the comment box below!
Disclaimer:
We hope the information in this article provides valuable insights to every reader but we, the Biesingers, are not financial advisors. When making your personal finance decisions, research multiple sources and/or receive advice from a licensed professional. As always, we wish you the best in your pursuit of financial independence!
