Refinancing my mortgage required a ton of paperwork, but I'm saving $130 a month and I'd do it again for a lower rate
- My husband and I bought our house about a year ago and recently refinanced our mortgage. Our interest rate went from 3.875% to 3.375%, saving us $130 a month.
- We decided to refinance to save money every month - it was worth it for the two weeks of paperwork and back-and-forth emails with our lender.
- If we have the chance to refinance again for a lower rate in the future, we definitely plan to look into it.
- Learn how to get a lower mortgage interest rate »
Hi, new homeowner here. I recently went from renting apartments my entire adult life to owning a home.
About a year ago, my husband and I decided we were financially (and emotionally) ready to make things feel a little more permanent here in LA by purchasing a house. After shuffling through at least 40 open houses, obsessively refreshing every MLS site all day long (I downloaded the apps and got notifications, too), and putting down a few offers only to be turned down, we finally found our dreamy dream house. A Spanish-style three-bedroom, two-bath on the eastside of LA with a red door and matching shutters.
But the process? It made me want to dig a deep hole in the earth and live there instead. The amount of financial prodding and paperwork and phone calls seemed infinite. At last, though, the offer was accepted, my husband and I signed away the next 30 years of our lives, and we were left with a monthly mortgage payment.
Let's talk about interest rates
So, when you take out a loan (for just about anything, not just a property), there's interest that comes along with it, because that is how lenders make money. Our mortgage interest rate was originally 3.875%, which was considered super reasonable in July 2019 (this was partially due to the fact that my husband and I had good credit, and the amount we put down was substantial enough). Seven months later, though, I learned we could pay a lower interest rate - 3.375% to be exact.
By refinancing our mortgage, we could potentially save about $130 every month. All we had to do was apply for a new loan, which would pay out our old one. It's similar to applying for a new credit card with a lower APR and transferring your old credit card balance to the new one … but with more hoops. Many, many more hoops. You are most likely transfering a lot more money, so the new lender will want to make sure you're good for it.
Why we refinanced
People refinance their mortgages for different reasons. They want to tap into their property's equity, shave the time it takes to pay off the loan, go from an adjustable rate to a fixed-rate loan, do away with mortgage insurance, or end up with a lower mortgage payment every month.
Our reason was the latter. We just wanted to save a chunk of change every month. We'll do it again, too, if interest rates drop low enough.
The process of refinancing our mortgage was pretty straightforward
I have to give credit where credit is due: My dad is in the real estate business and watches the market like our dog watches the front window, dutifully staring down every single moving thing that walks or bikes past on our sidewalk.
My dad called me and told me I'd be wise to refinance my mortgage, since he saw that interest rates had dropped by just googling "interest rates." (Yup, it's that easy!) Plus, he had worked with a particular lending company before, and knew that they were low-margin refinancers. This is important, since closing costs and fees can run high, making it not worth it to refinance (you may barely save anything on your monthly payment, if at all). Closing costs include (but are not limited to, so double check!) a credit report, notary, and appraisal fee.
After thoroughly doing the research and double (triple) checking, I learned I'd still save a sizeable amount every month after the closing costs were added into my new mortgage, so I got to work.
First, I had to send the loan officer every single financial detail about myself: where I currently work, where I worked previously (and for how long), last year's tax returns, and several bank statements. Plus, they had to run a credit check (my credit is pretty high, so no problems there - it's something I'd been working on for the last few years by paying off all my credit cards and being diligent about paying all my bills on time).
I avoided buying anything expensive, put off a few renovations, and my husband and I held onto our stable jobs. Neither of us was planning on making a career move in the near future, which could have hurt our chances of getting approved for refinancing by the lender.
We actually ran into this issue when I was at my last job. We put in an offer on a home right after I had accepted another job offer. Not wanting to risk it, I called my soon-to-be employer and explained the situation, and could I put off starting for a couple weeks? It was a stressful time all around, but if you find yourself in a similar situation, just know that employers are understanding about these things (and if they're not, that's a red flag - which is a whole other story!).
If either my husband or I were between jobs, this too would have hurt our chances of being approved for the refinance. Lenders want to be positive that they're choosing good borrowers who are able to pay the mortgage every month.
And speaking of employment: The loan officer made some calls to my job, verifying I worked there. The same thing happened when we were being approved for our home loan, so this step wasn't surprising.
After the loan was approved (this took a few days), a notary was sent to my house where my husband and I had to sign (no joke) close to 120 pages of paperwork. I then needed to wire about $6,500 to the lending company as a six-month reserve for my property tax and home insurance payments (this is because I elected to have my mortgage payment bundled up with both taxes and insurance instead of paying each separately).
Once everything had been filed, the final step was cancelling my automatic mortgage payment with my bank. The whole process took about two weeks - nothing like we experienced when buying our house (closing escrow took much longer) but we did need to make sure we'd organized our finances and sent all paperwork in on time. The interest rates on homes change quickly, so we were only temporarily locked into the 3.375% rate.
Ultimately, refinancing my mortgage was two weeks of my life that involved going through financial paperwork I prayed that I'd saved somewhere (I did, phew), constantly emailing back and forth with the loan officer, and doing the homework to make sure we were making the right choice. Obviously I would have rather been at Disneyland for two weeks, but now that I'm saving $130 each month I can justify a trip in a few months, right?
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