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Refinancing your mortgage means replacing your current loan with a new one — usually to get a lower interest rate, reduce your monthly payment, or change your loan term. Done right, it can save you tens of thousands of dollars over the life of your loan.
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Step 1: Decide If Refinancing Makes Sense
- Rate difference: Is the new rate at least 0.5-1% lower? The higher the difference, the faster you break even.
- Break-even point: Divide closing costs by monthly savings. Example: $6,000 in costs / $200 monthly savings = 30 months to break even.
- Time in home: Will you stay at least until the break-even point?
- Loan term: Restarting a 30-year clock can increase total interest even if the rate is lower. Consider a shorter term.
Step 2: Check Your Credit Score and Home Equity
- Credit score: A score of 740+ gets you the best offers. Pull your free credit report at AnnualCreditReport.com before you apply.
- Loan-to-value (LTV): Most lenders want your LTV to be 80% or less. A lower LTV gets you a better rate.
Step 3: Gather Your Documents
- Two most recent pay stubs
- Two most recent federal tax returns
- Two months of bank statements
- Your current mortgage statement
- Homeowner’s insurance information
- Property tax information
Step 4: Shop Multiple Lenders
Get at least 3 quotes. Borrowers who shop multiple lenders save an average of $1,500 or more. Rate shopping within a 14-45 day window counts as a single credit inquiry.
- Your current lender (may waive fees to keep your business)
- Other banks and credit unions
- Online lenders (Rocket Mortgage, Better, loanDepot)
- Mortgage brokers
Step 5: Lock Your Rate
Once you choose a lender, lock your rate. Rate locks typically last 30-60 days and protect you if rates rise during processing.
Step 6: Underwriting and Appraisal
The lender will verify your income, assets, and credit and order a home appraisal. This process takes 2-4 weeks. Respond quickly to document requests to avoid delays.
Step 7: Close the Loan
Sign the new loan documents and pay closing costs (or roll them into the loan). Your old mortgage is paid off automatically. You have a 3-day right of rescission after signing.
Types of Refinances
- Rate-and-term: Changes your rate, term, or both. Most common.
- Cash-out: You borrow more than you owe and receive the difference in cash. Useful for home improvements or debt payoff.
- Streamline: Simplified process for FHA, VA, and USDA loans. Less documentation required.
Frequently Asked Questions
When should I refinance my mortgage?
Refinancing makes sense when you can lower your rate by at least 0.5-1% and plan to stay long enough to recoup closing costs.
How much does it cost to refinance a mortgage?
Closing costs typically run 2-5% of the loan amount. On a $250,000 refinance, expect $5,000-$12,500 in fees.
How long does it take to refinance a mortgage?
Most refinances take 30-60 days from application to closing.
Does refinancing hurt your credit score?
A hard inquiry typically drops your score 2-5 points temporarily. Rate shopping within 14-45 days counts as one inquiry.
What is a no-closing-cost refinance?
It rolls the closing fees into the loan balance or charges a slightly higher rate in exchange for no upfront fees.
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Rates as of May 2026. Rates change frequently — check the lender’s site for the most current information.