Your Wisconsin or Minnesota home is likely your largest financial investment. That means your mortgage should be reviewed from time to time to make sure it still fits your goals.
Recognizing the signs that it might be time to refinance your mortgage can help you leverage your home’s equity, potentially lower your monthly expenses, or change the trajectory of your debt repayment.
Refinancing essentially means trading in your current mortgage for a newer one, often with a new principal and a different interest rate. Your lender then uses the new loan to pay off the old one, leaving you with a single monthly payment.
Below, we explore the primary signs that suggest it may be time to transition into a new mortgage structure.
What are the Signs It’s Time to Refinance Your Mortgage?
You may want to refinance if:
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Interest rates have dropped since you got your loan
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Your credit score has improved
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You want to switch from an ARM to a fixed rate
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You need to access home equity through cash-out refinancing
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You want to change your loan term
Understanding the Mechanics of Refinancing
Before looking at the signs, it is important to understand the process. Refinancing is not a simple "rate adjustment." It is a new loan application that involves many of the same steps as your initial purchase, including credit checks, income verification, and usually a new home appraisal.
The upfront costs, such as closing fees and appraisal costs, must be weighed against the long-term benefits. A refinance is generally considered "worth it" when the monthly savings or financial advantages eventually outweigh these initial expenses.
Key Signs It Is Time to Refinance
1. Market Interest Rates Have Dropped
The most common reason homeowners choose to refinance is to secure a lower interest rate. Even a reduction of 1% to 2% can result in significant savings over the life of a 30-year loan. Lowering your interest rate not only reduces your monthly payment but also increases the speed at which you build equity in your home.
2. Your Credit Score Has Improved Significantly
Perhaps when you first applied for your mortgage, your credit score was "fair" due to a shorter credit history or higher debt-to-income ratio. If you have spent the last few years diligently paying down debt and improving your score, you may now qualify for the "prime" rates reserved for high-credit borrowers. Refinancing allows you to move into a Conventional loan from an FHA or USDA loan that may have had higher costs associated with credit risk.
3. You Want to Transition from an ARM to a Fixed-Rate Loan
Adjustable-Rate Mortgages (ARMs) often start with lower rates, but they eventually enter an adjustment period where the rate can fluctuate based on market conditions. If you currently have an ARM and value long-term budget stability, refinancing into a fixed-rate mortgage ensures your principal and interest payment stays the same for the remaining life of the loan.
4. You Need to Leverage Your Home’s Equity (Cash-Out Refinance)
If your home’s value has increased, you may be able to tap into that value through a cash-out refinance. Homeowners often use these funds for:
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Major Home Improvements: Enhancing your property’s value.
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Consolidating High-Interest Debt: Using home equity to pay off credit cards or personal loans with much higher interest rates.
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Educational Expenses: Funding college tuition.
Comparing Your Refinance Loan Options
Choosing the right structure for your refinance is just as important as the decision to refinance itself. Citizens State Bank offers a variety of programs tailored to your specific situation:
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Conventional Loans: Ideal if you have a strong credit score and want to move into a primary, second, or investment property.
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FHA and USDA Refinances: Great for those looking for flexible underwriting or those in eligible rural and suburban areas.
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VA Interest Rate Reduction Refinance Loans (IRRR): A valuable benefit for veterans and active-duty military to lower their interest rates with minimal "red tape."
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Specialty and Non-Conforming Loans: For non-standard properties, such as hobby farms or manufactured homes, that don’t fit traditional underwriting.
Important Considerations: The "Breakeven" Point
While there are several "pros" to refinancing—such as removing a person from a mortgage or lowering a payment—there are "cons" to consider. Upfront costs can be substantial. To determine if it is the right time, you must calculate your "breakeven point."
The Breakeven Formula:
$$Total Closing Costs \div Monthly Savings = Months to Break Even$$
If your closing costs are $4,000 and your refinance saves you $100 a month, it will take 40 months (over 3 years) to recover your investment. If you plan to move in two years, refinancing may not be financially advantageous.
Mortgage Refinancing in Wisconsin and Minnesota
If you recognize these signs in your own financial situation, the next step is to speak with a professional who understands the local markets in Western Wisconsin and Eastern Minnesota.
Our mortgage lenders take a personalized approach, helping you evaluate whether the long-term benefits of a new loan align with your current budget.
Your home is more than just a place to live; it is a financial tool. Whether you seek to avoid probate court battles between heirs by cleaning up your title or simply want to shorten your loan term to pay your house off sooner, we are here to guide you.
If you’re seeing one or more of these signs, now is the time to review your loan. Contact Citizens State Bank to discuss refinance options in Wisconsin or Minnesota and see how much you could save.