Isn't That Rich Podcast

Refinancing is a hot topic these days, especially with interest rates playing an unpredictable game of musical chairs. For homeowners, understanding the ins and outs of refinancing can make a world of difference in their financial strategy. Lucky for you, we recently sat down with Taylor Abney, Farmers State Bank’s loan officer extraordinaire, to break down everything you need to know about refinancing. Whether you’re considering a cash-out option or just itching to ditch that PMI, we'll guide you through it all with Taylor's expert insights.

Taylor’s Path to Lending Success

Before Taylor was crunching numbers at Farmers, she spent five years in real estate and worked at her dad’s accounting office. This unique combo led her straight into lending—a perfect blend where she could stay close to the real estate world and use her knack for financials. “It’s not showing houses, but still being involved in the housing sector,” Taylor said. It also gave her a keen awareness of deadlines and the importance of keeping everyone in the loop—skills that set her apart as a loan officer.

What is Refinancing, Really?

So, what exactly is refinancing? Taylor described it simply: “It’s taking your existing loan and redoing it—whether it’s changing the term or snagging a better interest rate.” Refinancing can mean shifting from a 30-year loan to a 20 or 15-year term, or just updating your rate to make your monthly payments easier on your wallet.

Why Refinance?

While the idea of lower interest rates might get you interested, there are other solid reasons to refinance:

• Saving on Monthly Payments: This is the most common reason. Lower interest = lower payments.
• Tapping Into Home Equity: Many homeowners use the equity they’ve built to pay off higher-interest debts like credit cards or car loans. Taylor emphasized, “Interest rates on car loans and credit cards are currently between 5% and 32%, making it financially smarter to consolidate debt through a cash-out refinance.”
• Removing PMI: Private Mortgage Insurance (PMI) is an extra cost if you didn’t put at least 20% down on your home. Refinancing could help remove that burden once you’ve built enough equity. Taylor noted, “Getting rid of PMI could save homeowners $100 or more per month, depending on credit scores and the original down payment.”

The Flip Side: The Cons of Refinancing

But before you rush in to redo your loan, there are some cons to consider. Taylor advised thinking about how long you plan to stay in your home: “If you’re not going to be there for at least five to ten years, the closing costs may not be worth it.” Refinancing isn’t free, and costs like appraisals, title work, and loan fees add up. “These costs can usually be rolled into your loan if you have enough equity,” Taylor added, “but that does mean increasing your total loan balance.”

Refinancing also means a hard inquiry on your credit. Taylor explained, “A hard hit on your credit score could drop your score, which is a big deal if you plan to make other large purchases, like a car or even student loans for your kids.”

How to Calculate If Refinancing Makes Sense

For those crunching numbers at home, Taylor recommends using a simple rule of thumb: “Look for at least a one to 1.5% decrease in your current rate.” But don’t stop there; factor in closing costs to determine if it’s worth it in the long run. Taylor explained, “If you’re at a 7.5% interest rate, you’d want to see a new rate at around 6.5% or lower for the math to work in your favor.”

Taylor’s transparency helps ensure homeowners aren’t refinancing for small savings that don’t add up. “I’ve had clients who were adamant about refinancing even for less than a 1% decrease. In those cases, it usually only makes sense if they’re cashing out for debt repayment or home improvement,” she said.

Cash-Out Refinancing: More Than Just Lower Rates

Not all refinancing is about a lower interest rate. Taylor often sees people use cash-out refinancing to pay for home renovations, college tuition, or consolidate high-interest debt. “If your car loan is at 12% or your credit card is at 28%, a mortgage rate of 6.5% suddenly looks appealing,” she pointed out. Taylor also stressed the importance of knowing your home’s current market value: “Sometimes, adding a bathroom or updating your home can boost your home’s value enough to remove PMI or access more equity.”

The Process, Simplified

Taylor walked us through the refinancing process step-by-step:

1. Application: Clients can get applications via email, at the branch, or even through the drive-thru. “I highlight the necessary parts to make it easier because it can be overwhelming,” Taylor shared.
2. Approval: Once she has pay stubs, tax returns, insurance, and other documents, Taylor inputs the information to get an approval decision within 24 hours. “People get anxious waiting, so I try to move quickly,” she said.
3. Initial Disclosures (Earlies): These go out within three days, providing estimated closing costs and rates.
4. Appraisal and Title Work: Taylor ensures the appraisal is accurate and only orders title work once the appraisal is satisfactory to avoid unnecessary fees.
5. Closing: After a closing disclosure is signed (three days before the actual closing), clients must wait three days post-closing for funds to be released.

Taylor reminded listeners about the three-day rescission period: “People often expect immediate funds, but federal law requires three days for the borrower to reconsider and cancel the loan if needed.”

Other Refinancing Options

Aside from cash-out refinancing and rate-term refinancing, Taylor highlighted the streamlined refinance for those simply looking to lower their rate or payment. She also touched on home equity lines of credit (HELOCs) as an alternative for those wanting flexibility: “It’s a line open for 10 years, perfect for tapping into funds when needed, though it follows the Federal Reserve’s prime rate.”

What About Adjustable Rates?

Taylor stressed the importance of refinancing adjustable-rate mortgages (ARMs) to fixed rates, especially when ARM terms are nearing the end: “Adjustable rates can be risky, and with rates as they are, refinancing to a fixed rate could save a lot of stress and money in the long run.”

The Final Word: Timing is Key

Taylor’s best advice? “Refinance when it makes sense for you, not just because rates dropped a bit.” While end-of-year rate drops are anticipated post-election, Taylor suggests being strategic: “I check client rates weekly to make sure I catch opportunities when they arise. It’s all about having someone look out for you.”

Ready to Talk Refinancing?

If you’re in the Harrisburg area and want to learn more about refinancing or need guidance through your financial journey, Taylor Abney is your go-to expert. Reach out to her at Farmers State Bank for personalized, straightforward advice. And if you’ve been thinking about refinancing, now’s the time to do the math and see if it makes sense for your situation.