Refinancing your home loan in Michigan can seem like a big puzzle but understanding a few key things can make the whole process much clearer and easier. With my 25 years of experience helping homeowners in Metro Detroit and across Michigan, I want to share the top 5 things you really need to know before you refinance.

1. Understanding Closing Costs, Prepaids, and Your Escrow Account

When you refinance, you’ll hear about “closing costs” and “pre-paid expenses.”

• Closing Costs: These are the fees you pay to the lender and other necessary third-party companies (like title companies) for setting up your new loan. They cover things like loan origination fees, appraisal fees, and title insurance.
• Pre-Paid Expenses: These are things you pay in advance at closing, like a few months of property taxes and homeowner’s insurance premiums. These funds go into a new “escrow account” that the new lender will set up to pay those bills for you when they are due.

What about your old escrow account? Here’s a crucial point: Your existing escrow account balance from your old mortgage does NOT automatically transfer to your new loan. Instead, your current lender will refund your old escrow balance to you after your old loan is paid off (usually within 30 days of closing your refinance). Your new loan will then start a brand-new escrow account, which you’ll fund with those pre-paid expenses at closing. It’s like closing one savings account and opening a new one for the same purpose.

2. Your Right to Change Your Mind: The Right of Rescission

Did you know that after you sign your refinance papers, you usually have a short time to change your mind and cancel the loan without penalty? This is called the Right of Rescission.

• What it is: This is a federal law, part of the Truth in Lending Act (TILA), that gives you a “cooling-off period.” It allows you to cancel certain refinance loans (specifically for your primary residence) until midnight of the third “business day” after you’ve signed the loan documents, received your Closing Disclosure, and received two copies of the notice explaining your right to rescind. “Business days” include Saturdays but not Sundays or federal holidays.
• Why it matters: This rule is in place to protect you! It gives you time to review everything, make sure you’re comfortable. If you do decide to cancel, you must send a written notice to your lender within the three-day window.

3. Consider Matching Your Remaining Loan Term (Cash-Out or Rate & Term)

Whether you’re doing a “cash-out” refinance (getting extra money) or a “rate and term” refinance (just changing the rate or length of your loan), it’s smart to think about your current loan’s timeline.

• The Benefit: Many people automatically go for a new 30-year loan when they refinance. But if you’ve already paid on your current mortgage for, say, 5 or 10 years, restarting with a brand new 30-year loan means you’ll pay interest for much longer. If you can, try to match the remaining term of your current loan (e.g., if you have 22 years left, try for a 20-year loan or you can even make it a new 22-year loan). This helps you pay off your home faster and save a lot of money on interest over the long run, even if your monthly payment is a little higher than a new 30-year loan.

4. When Rates are Dropping, Think “No-Cost” Refinances

Mortgage rates in Michigan (and everywhere) go up and down. If you find yourself in a time when interest rates are slowly going down, consider a “no-cost” refinance for moderate savings.

• What it is: A “no-cost” refinance means the lender covers your closing costs. In exchange, you typically get a slightly higher interest rate than if you paid the closing costs yourself.
• Why it’s smart in a falling market: If rates are expected to keep dropping, you might want to refinance multiple times to “ride the wave down” to lower rates. A no-cost refinance lets you do this without paying expensive closing costs each time. You can get some savings now, and then easily refinance again later if rates drop even further, allowing you to get an even better deal without restarting your break-even period each time.

5. Always Get Competitive Quotes (and Support Local!)

• The Mistake: It might seem easiest to just refinance with the bank that holds your current mortgage. They already know you, right?
• Why it’s a Mistake: Not getting competitive quotes from a couple of different lenders can cost you thousands of dollars over the life of your loan. Just because your current lender is familiar doesn’t mean they offer the best rates or the lowest fees, or even have your fiscal/housing goals in mind. If one of the first questions they ask you is not, what is the goal of the refinance, they might not be the right lender for you.
• The Smart Move: Always shop around! Get at least 2-3 quotes from different lenders. And don’t forget to look at local mortgage lenders like me! By working with a local professional, you not only get personalized service and someone who understands the Michigan market, but you also support a local business in your community.

Refinancing can be a powerful financial tool for your Michigan home. By keeping these five points in mind, you’ll be much better prepared to make smart decisions.

Ready to explore your refinance options in Michigan with confidence? With 25 years of experience in the Metro Detroit area and throughout the state, I am well-versed in mortgages and can help you navigate these details to find the best solution for your unique needs. Contact me today for a no-pressure consultation and competitive rate quote!