Thursday, November 30, 2023

When To Refinance Your Mortgage Dave Ramsey

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What Does Your Mortgage Payment Include

How To Know When To Refinance Your Mortgage

Heres what the typical monthly mortgage payment includes:

  • Principal
  • Property taxes
  • Private mortgage insurance , if you put less than 20% down on your home

If you want to pay more on your mortgage, be sure to specify you want any extra money to go toward the principal only, not an advance payment that prepays interest.

When Is Refinancing A Bad Idea

On the other hand, there are definitely times when refinancing your mortgage would not be a good idea. Well give you some examples.

It wouldnt be wise to refinance because you want to use the money to:

  • Get a new car
  • Pay off credit card bills
  • Roll up other debt into a refinanced mortgage

Wiping out your home equity to buy new stuff you dont need puts your home at riskespecially if you lose your job or have other money issues.

Also, the reason you dont want to roll up other debt into one gigantic refinanced mortgage is because you want to pay off your smaller debts first .

Lumping your student loan debt into your mortgage means its going to take a lot more time to pay off those loans and your mortgage too. It puts you even further away from completing either of those goals. No thanks.

Which Home Mortgage Option Is Right For You

With so many mortgage options out there, it can be hard to know how each would impact you in the long run. Here are the most common mortgage loan types:

  • Adjustable-Rate Mortgage
  • Federal Housing Administration Loan
  • Department of Vertans Affairs Loan
  • Fixed-Rate Conventional Loan

We recommend choosing a 15-year fixed-rate conventional loan. Why not a 30-year mortgage? Because youll pay thousands more in interest if you go with a 30-year mortgage. For a $250,000 loan, that could mean a difference of more than $100,000!

A 15-year loan does come with a higher monthly payment, so you may need to adjust your home-buying budget to get your mortgage payment down to 25% or less of your monthly income.

But the good news is, a 15-year mortgage is actually paid off in 15 years. Why be in debt for 30 years when you can knock out your mortgage in half the time and save six figures in interest? Thats a win-win!

Recommended Reading: How To Figure Out Mortgage Interest

Will You Stay In Your Home Long Enough To Benefit From A Refi

Using our example , youd pay $23,000 in interest over the next three years with your current 30-year loan at a 4% interest rate.

On the flip side, the 15-year refi at 3% interest would only cost you about $17,000 in interest the first three years. That means, after three years, your refi will have made up for its own closing costs .

After that, youll enjoy thousands of dollars of savings nearly every year until you pay off the mortgage or sell your home! But if you relocate in just 12 years after refinancing, you wouldnt earn back that $6,000 and the refi wouldnt have been worth it.

Whewthats a lot to throw at you! And we know that even when using a mortgage calculator, the math can be pretty complicated. So ask a home loan specialist you can trust for helplike our friends at Churchill Mortgage.

What Happens After You Get Preapproved For A Home Mortgage Loan

The Answer To The Student Loan Problem

Getting preapproved for a mortgage is just the beginning. Once the financial pieces are in place, its time to find your perfect home! While its one of the most exciting stages of the process, it can also be the most stressful. Thats why its important to partner with a buyers agent.

A buyers agent can guide you through the process of finding a home, negotiating the contract, and closing on your new place. The best part? Working with a buyers agent doesnt cost you a thing! Thats because, in most cases, the seller pays the agents commission. Through our Endorsed Local Providers program, our team can match you with the top real estate agents we recommend in your area.

Also Check: What Documents Are Needed To Get Pre Approved For Mortgage

Reduce Your High Interest Rate To A Lower Rate

If your mortgage has a higher interest rate compared to ones in the current market, then refinancing could be a smart financial move if it lowers your interest rate or shortens your payment schedule.

If you can find a loan that offers a drop of 12% in its interest rate, you should think about it. But remember, refinance only if youre planning to stay in your home for a long time, because then you can earn back what you paid in closing costs.

The History Of Churchill Mortgage

  • Direct-to-consumer mortgage lender founded in 1992 by Mike Hardwick
  • Headquarters are located in Brentwood, Tennessee
  • Employs more than 400 people with branches in dozens of states
  • Does business in 46 states nationwide
  • Funded more than $2 billion in home loans last year
  • Did the most business in Tennessee, Texas, and California
  • Their main product pitch is the money-saving 15-year fixed mortgage

Churchill Mortgage is a privately-owned company that was founded in 1992, meaning it has been around for nearly 30 years.

In the mortgage industry, that makes it one of the older companies still standing and/or independent, given many were lost during the Great Recession.

It was founded by Lawson H. Hardwick, III in Brentwood, Tennessee. He was previously one of the principal founders of Franklin National Bank until it was acquired by Fifth Third Bank.

Today, his company has more than 400 employees across a nationwide branch network in 46 states.

They dont appear to do business in Delaware, Hawaii, Nevada, or New York.

In 2019, the company originated more than $2.2 billion in home loans, a record year for Churchill Mortgage.

Also Check: What’s The Average Mortgage Payment

Can You Get A Home Mortgage Loan Without A Credit Score

The answer is, yes! If you apply for a mortgage without a credit score, youll need to go through a process called manual underwriting. Manual underwriting simply means youll be asked to provide additional paperworklike paystubs and bank statementsfor the underwriter to review. This is so they can evaluate your ability to repay a loan. Your loan process may take a little longer, but buying a home without the strain of extra debt is worth it! Keep in mind, not having a credit score is different than having a low credit score. A low credit score means you have debt, but having no credit score means you dont like debt!

Explanation Of Mortgage Terms

Is Refinancing Your Mortgage Worth It?

Mortgage terminology can be confusing and overly complicatedbut it doesnt have to be! Weve broken down some of the terms to help make them easier to understand.

Learn about

Home Price

Across the country, average home prices have been going up. Despite the rise in home prices, you can still find a perfect home thats within your budget! As you begin to house hunt, just make sure to consider the most important question: How much house can I afford? After all, you want your home to be a blessing, not a burden.

Learn about

Down Payment

The initial cash payment, usually represented as a percentage of the total purchase price, a home buyer makes when purchasing a home. For example, a 20% down payment on a $200,000 house is $40,000. A 20% down payment typically allows you to avoid private mortgage insurance . The higher your down payment, the less interest you pay over the life of your home loan. The best way to pay for a home is with a 100% down payment in cash! Not only does it set you up for building wealth, but it also streamlines the real estate process.

Learn about

Mortgage Types

15-Year Fixed-Rate Mortgage

30-Year Fixed-Rate Mortgage

5/1 Adjustable-Rate Mortgage

Learn about

Interest Rate

Learn about

Private Mortgage Insurance

Learn about

Homeowners Insurance

Learn about

Homeowners Association Fees

Learn about

Monthly Payment

Learn about

Property Taxes

Mortgage Calculator Uses

Read Also: Why Are Mortgages So Hard To Get

Refinance Or Pay Extra: An Overview

Knowing when to refinance or when to keep your existing loan and make additional payments depends on your financial goals and specific needs.

Everybodys situation is a little different, but heres a quick way to assess your own scenario:

Its usually better to refinance when:

  • You expect to stay in the home a long time. The upfront costs of refinancing pay off when you stay in the home long enough to benefit from the new loans savings
  • Youre not far into the existing loan. If youve only had your existing mortgage a few years, youre more likely to save money in the long run by refinancing
  • You also want to tap home equity. With a cash-out refinance you can save on interest and get cash back to renovate your home, consolidate credit card debt, or use for any other purpose
  • You can qualify for a low rate. Unless youre doing a Streamline Refinance, your mortgage lender will check your credit score and debt-to-income ratio to determine your rate. Borrowers with great credit, low debt levels, and plenty of home equity have access to some of the best rates and biggest refinance savings

If one or more of these conditions is true for you, youre probably a good candidate to refinance and pay less interest at todays historically low rates.

Its usually better to make extra payments when:

If one or more of these conditions describes your situation, making extra loan payments might offer a better and more cost-effective path forward.

For example, a new mortgage could:

How To Find The Best Mortgage Refinance Rates

If you still maintain a , it will play a role in the interest rates youre offered. The higher the score, usually, the lower the rate. Shop around with different lenders to see who can offer you the best deal. Remember, the whole point of refinancing is to get a better rate and/or a shorter loan term than youve currently got!

But if youre debt-free and dont use credit cards, well, that probably means you dont have a credit score. And thats a good thing! Around here, we call a credit score an I love debt score. But since most mortgage lenders use a credit score as their primary way of setting interest rates for applicants, make sure to look for a company like Churchill Mortgage. Churchill provides manual underwriting for customers without a credit score, as well as the loan approval process for people with one.

If youre ready to get the process started or just curious whether refinancing your mortgage could save you big bucks, then get connected with our trusted mortgage provider, Churchill Mortgage. Theyre committed to keeping your budget top of mind and finding the best option for your home.

About the author

Ramsey Solutions

Recommended Reading: How Mortgage Pre Approval Works

What If I Cant Pay My Current Mortgage

If youre out of work right now and finding it hard to pay your mortgage, theres good news for you. Depending on your specific situation, you may be able to have your mortgage payments lowered or put on hold.5

Doing that can really help to free up the burden you might be feeling right now if youre worried about when youll see your next paycheck.

How Much Does It Cost To Refinance

Refinance Your Mortgage The Dave Ramsey Way

There are a few different types of costs to refinancing. Some fees are paid to the lender, which reimburse the bank for the time it takes to work on your refinance. There may be other fees like an appraisal fee, documentation fees, etc. Refinancing a mortgage is a complex transaction that involves a lot of parties. Theyre all looking to get paid, and chances are youre the person paying.

Another notable expense is points. Points are basically prepaid interest. You pay interest up-front in the form of points, which effectively buys you a lower interest rate on the mortgage. Points are an interesting factor to consider. If you plan to be in your home for a long time, points might actually work out to your advantage. When you pay points, that will usually lengthen your breakeven time horizon, i.e. it will take longer for you to recover the costs of refinancing. However, you get a lower rate, and if you stay in your home a long time, you get to enjoy that lower rate longer. If you are fairly certain you will stay in your home for say, 10 years, and you conduct a side-by-side comparison of a loan without points and a loan with points, dont be surprised if you come out ahead by paying points. Heres a calculator you can use to help you determine whether paying points makes sense.

Recommended Reading: Does Chase Allow Mortgage Recast

Dave Ramsey Says: Refinancing Home At Great Rate Is Worth Higher Monthly

Dear Dave,

My husband and I are on Baby Step 2, and weve paid off about $30,000 in consumer debt since March.

We were wondering if we should refinance our mortgage. Our current rate is 4.875%, with 28 years remaining on the loan.

We found a 15-year refinance at 2.5%, which would raise our monthly payments about $200, but we can handle that. We have $150,000 in equity in our home and about $207,000 left on the loan.

What do you think we should do?


Dear Raye,

You two have done a great job this year! Im so proud of what youve accomplished and that youre looking to the future.

Baby Step 2 wouldnt be affected, except that your monthly mortgage payment will go up a little.

I wouldnt pay the refinance costs out of pocket, though. Id roll them into the loan.

Youd be saving more than 2% by locking in this crazy-low interest rate, and youre knocking the whole thing down to a 15-year loan. I love all that.

Its definitely worth the extra $200 a month to make it happen.

Think about it this way. Youre going to be saving more than $4,000 a year with the interest rate reduction.

Youre not going to see it in cash flow because of the $200 increase in monthly payments, but over the scope of the loan, youre going to be charged between $4,000 and $4,500 less per year for interest.

All that money is going toward paying back the closing costs and reducing the principal built into the move from 28 years to 15 years.

Yes, you should do this!


Get Rid Of Your Private Mortgage Insurance

If your down payment was less than 20% of your mortgage when you bought your home, then your mortgage lender has required you to pay for PMI. Basically, it protects them if you cant pay your mortgage and the home goes into foreclosure. PMI helps them cover the hit theyd take by having to sell your home at auction.

But PMI stinks. Its expensive and will slow you down from paying off your principal. So, if youre looking into refinancing your mortgage and your new loan would be 80% or less of your homes current appraised value, ask about having your PMI removed.

Also Check: What Is A Good Dti For A Mortgage

Make An Extra House Payment Each Quarter

When you throw extra money at your monthly mortgage payment, more of each payment after that goes toward your principal balance. Plus, with each extra payment, youll be closer to removing private mortgage insurance faster from your loan if you have it. Once your mortgages principal balance is 80 percent of the original value of your home, you can request removal of your PMI.

Heres how extra payments would affect a $220,000, 30-year mortgage with a 4 percent interest rate:

  • Make one extra payment each quarter to shave 11 years and nearly $65,000 off your mortgage.
  • Divide your payment by 12 and add that amount to each monthly payment, or pay half of your payment every two weeks. This bi-weekly payment schedule adds up to one extra payment each year, saving you $24,000 and four years off your mortgage.
  • When you cant afford that extra payment, just round up your payments so youre paying at least a few extra dollars each month, and increase your payment when you get a raise or bonus. That little bit extra will save you from paying more interest than you have to.

Also See: 7 Things to Consider Before Paying Off Your Mortgage Early

Dave Ramsey’s Best And Worst Mortgage Advice

When Does Refinancing Your Mortgage Make Sense?

by Christy Bieber | Published on Aug. 20, 2021

Many or all of the products here are from our partners. We may earn a commission from offers on this page. Its how we make money. But our editorial integrity ensures our experts opinions arent influenced by compensation. Terms may apply to offers listed on this page.

You should listen to Dave Ramsey about some things, but not about this.

When you’re buying a house, you can’t afford to make bad financial decisions. You will likely be committing to a mortgage loan, which comes with a big monthly payment that you’ll be responsible for making for decades.

You’ll also be spending a ton of money on your home, and your property will likely end up being your most valuable asset — if you make good choices about your home purchase. On the other hand, if things go wrong, it could lead to financial disaster.

Since the decisions you make about your home loan will have such a big impact on your financial life, you may research and pay careful attention to what personal finance experts say about buying real estate. Dave Ramsey is one of the best known personal finance experts, and he’s got a lot to say about mortgage loans.

But while Dave has a tendency to offer some great insight, he also gives some advice that many borrowers probably shouldn’t listen to. Here’s the best — and worst — piece of mortgage advice he’s provided.

Recommended Reading: Who Offers 20 Year Mortgages

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