A Closer Look at Refinancing

Refinancing your mortgage can be a powerful tool for homeowners looking to improve their financial situation, but it’s important to understand what the process involves before moving forward.

Whether you’re hoping to lower your monthly payments, reduce your interest rate or tap into your home’s equity, refinancing offers a range of potential benefits — but it also comes with important considerations. Let’s take a closer look at refinancing and how to tell if it’s the right move for you.

What is refinancing?

Refinancing is the process of taking out a new loan to replace your existing mortgage. This is most helpful when mortgage interest rates have fallen below the rate on your current mortgage.

Refinancing to a loan with a lower interest rate can reduce your monthly mortgage payments, and refinancing to a shorter term can help you build equity faster.

There are different options for refinancing depending on your goals.

How do I refinance?

The refinancing process is similar to the homebuying process. You will work with your lender to gather documents, work on an application, get your home appraised and close the loan.

It is important to note that you are not required to work with your current lender or servicer to refinance your mortgage. In fact, you may be able to save money by comparing multiple lenders and working with whomever provides the best rates and terms.

How long does a refinance take?

The refinancing process typically takes 30-45 days, though the timing can vary and will depend on your individual situation. When interest rates are low, demand for refinancing tends to be high, which means the process may take a little longer.

The best way to ensure a smooth, timely refinance is to make sure that you are prepared for any questions or requests for documents from your lender.

Does refinancing always save you money?

The amount you save on a refinance will depend on your current loan and current market conditions. Your lender can help you determine how much money you can save through refinancing.

Generally, experts agree that if interest rates are more than 1% lower than your current mortgage, you could financially benefit from refinancing.

How much will it cost to refinance?

Just like the homebuying process, refinancing your loan will require you to pay up-front costs and fees, including your home appraisal, underwriting and origination fees, among others. The costs to refinance your mortgage will be determined by your lender, your credit score and your location, but you can expect to spend 3%–6% of your loan principal.

Use our refinance costs calculator to estimate the costs of refinancing your current mortgage.

There are other factors to consider before moving forward with a refinance. For instance, if you plan to move out of your home in the near future, the monthly savings of your refinance may not offset the upfront costs required. It is best to talk to your lender or a housing counselor to see what works best for you.