Mortgage Refinancing Guide
Refinancing means replacing your existing mortgage with a new loan, typically to secure a better rate or term, change from an adjustable to a fixed rate, remove mortgage insurance, or convert home equity into cash.
Who It Tends to Fit
Refinancing tends to make sense for homeowners who can meaningfully improve their rate or terms, want to shorten or extend their loan term, need to remove a co-borrower, or want to access equity for a specific purpose such as debt consolidation or home improvements.
Key Features
- Rate-and-term refinance: adjusts the interest rate and/or repayment term without changing the loan balance meaningfully
- Cash-out refinance: replaces the loan with a larger one and provides the difference in cash, using home equity as the source
- Streamline refinance programs exist for some government-backed loans (such as FHA and VA) with reduced documentation
- Refinancing resets the loan, so it's worth comparing the new total interest cost, not just the new monthly payment
General Qualifying Factors
- Sufficient home equity, especially for a cash-out refinance
- Credit and income that meet the new loan's underwriting guidelines, similar to a purchase loan
- An appraisal is often required to confirm current home value
- Enough expected time remaining in the home to recoup closing costs through the new terms
Exact requirements vary by lender and can change over time, so treat the figures above as general starting points rather than guarantees. A licensed loan officer can confirm current guidelines for a specific program.
Costs to Expect
Refinance closing costs are similar in structure to a purchase loan — appraisal, title, and lender fees — commonly a few percent of the new loan amount, which is why homeowners often calculate a 'break-even' point before refinancing.
Also Worth Knowing
A useful way to evaluate a refinance is to divide the closing costs by the monthly savings to estimate how many months it takes to break even, then compare that to how long you plan to stay in the home.