Updated March 2026 | refinance mortgage
Refinancing replaces your current mortgage with a new one at better terms. The general rule: refinance if you can lower your rate by at least 0.75-1.0% and plan to stay in your home long enough to recoup closing costs.
Here is a quick calculation: If your current rate is 7.5% and you can refinance to 6.5% on a $300,000 balance, you save approximately $208/month. Closing costs are typically $4,000-$8,000. Break-even: 19-38 months. If you plan to stay 3+ years, it is worth it.
Other good reasons to refinance: switching from an ARM to a fixed rate before your adjustment period, removing PMI after reaching 20% equity, or doing a cash-out refinance to consolidate high-interest debt.
Rate-and-Term Refinance: The most common. You get a new loan with a lower rate or shorter term. No cash out. Lowest closing costs.
Cash-Out Refinance: Borrow more than you owe and take the difference as cash. Useful for home improvements or debt consolidation. Rates are typically 0.125-0.25% higher than rate-and-term.
Streamline Refinance: Available for FHA and VA loans. Simplified process with less paperwork, no appraisal required. FHA Streamline and VA IRRRL are the two main programs.
No-Closing-Cost Refinance: The lender covers closing costs in exchange for a slightly higher rate (typically 0.125-0.25% higher). Good if you might move within 3-4 years.
1. Check your current loan details: Know your balance, rate, monthly payment, and remaining term.
2. Check your credit score: Aim for 740+ for best rates. Fix any errors on your report.
3. Calculate your break-even point: Monthly savings divided by closing costs. If break-even is under 3 years, proceed.
4. Shop at least 3-5 lenders: Get quotes from banks, credit unions, and online lenders. Compare the Annual Percentage Rate (APR), not just the interest rate.
5. Choose your loan and lock the rate: Once you find the best deal, lock your rate for 30-60 days.
6. Application and documentation: Provide tax returns, pay stubs, bank statements, and homeowners insurance.
7. Appraisal: The lender orders a home appraisal ($400-$600). Your home must appraise at or above the loan amount.
8. Underwriting: 2-4 weeks for the lender to verify everything.
9. Closing: Sign the new loan documents. There is a 3-day right of rescission before the old loan is paid off.
Total timeline: 30-45 days from application to close.
Resetting to 30 years: If you have 22 years left and refinance to a new 30-year, you add 8 years of payments. Refinance to a 20 or 15-year term instead.
Ignoring closing costs: A lower rate means nothing if closing costs eat all your savings. Always calculate the break-even point.
Not shopping around: The first offer is rarely the best. Get at least 3-5 quotes.
Cash-out for depreciating assets: Using home equity to buy a car or vacation is risky. Only use cash-out for home improvements or high-interest debt consolidation.
Timing the market: Waiting for the perfect rate often means missing good opportunities. If the math works, refinance.