How to Refinance a Mortgage: A Step-by-Step Guide
- Refinancing replaces your current mortgage with a new loan, ideally at a lower rate or with better terms.
- It typically takes 41 days on average to refinance a house, but it can be much quicker (20 to 35 days) if you use a streamline refinance program.
- Closing costs typically run 2% to 5% of the loan amount, so calculating your break-even point is essential.
Refinancing a mortgage can let you:
- Lower your monthly payment
- Shorten your loan term
- Switch to a different loan program
- Unlock your home’s equity
But it’s not free. You’ll have to pay closing costs, which typically run 2% to 5% of the loan amount, so the math has to work in your favor.
This guide walks through how to refinance a mortgage step by step, what it costs and how long it takes to help you decide if now is the right time.
When you refinance, you’re swapping out your current mortgage for a brand-new one. Once the refinance is final, your old mortgage gets paid off, and your new one kicks in with whatever terms you agreed to.
The main difference between a refinance and a purchase is that you already own your home, so you’re refinancing to reach a specific financial goal, like lowering your monthly payment or getting cash out. You’ll choose your lender and loan type based on the financial goal you’re trying to hit and do some basic calculations to make sure that it’s a good financial move. (We’ll show you which calculations to choose below.)
The process is pretty similar to when you borrowed your original mortgage: You’ll need to shop around for rates, apply and go through underwriting again. Depending on the refinance program, you might have to submit all of the same information you provided when you purchased the home. Or, you may qualify to skip the home appraisal and income verification steps.
1. Determine your financial goal
Common refinance goals include:
- Lowering your interest rate
- Reducing your monthly mortgage payment
- Paying off your mortgage faster
- Changing an adjustable-rate mortgage (ARM) to a fixed-rate mortgage
- Borrowing equity to pay off high-interest debt or finance home renovations
- Altering your loan term (to be longer or shorter)
- Switching from a Federal Housing Administration (FHA) loan to a conventional loan
- Removing someone’s name from the mortgage
2. Choose a refinance type
You need to understand which levers you can pull to achieve each of these refinance goals. The table below gives a quick overview, but if you need more guidance, consider reaching out to a housing counselor.
If you currently have a government-backed loan, you may want to consider a “streamline” refinance, which allows you to skip the home appraisal and income verification steps. That means streamline refinances can be faster, easier and less expensive than traditional refinances.
| Your goal | How to achieve it with a refinance |
|---|---|
| Lowering your interest rate |
|
| Reducing your monthly mortgage payment |
|
| Paying off your mortgage faster |
|
| Changing an ARM to a fixed-rate mortgage |
|
| Borrowing equity to pay off high-interest debt or finance home renovations |
|
| Altering your loan term (to be longer or shorter) |
|
| Switching from an FHA loan to a conventional loan |
|
| Removing someone’s name from the mortgage |
|
Need more help? Find a housing counselor approved by the U.S. Department of Housing and Urban Development (HUD). They’re typically low-cost or free, and will have your best interests at heart.
3. Assess your credit score and home equity
Once you have a rough idea of what you want to do, take an inventory of your finances. A refinance may not be worth it — or even possible — if you can’t meet the requirements for the program you want to use. Your credit score, income and debt will all need to be up to the task.
You’ll usually get the best interest rates if you have:
- A 780 credit score or higher
- You’re borrowing significantly less than 97% of your home’s value
- Your monthly debts are significantly lower than 36% of your income
If you want to take cash out, you’ll have a higher bar for qualification: you’ll need at least a 680 credit score (compared to a minimum 620, which is typical for a standard refinance) and a significant amount of home equity to qualify. Typically, you need to maintain at least 10% to 20% equity after you take out the refinance loan. And, the more equity you have, the better your rate is likely to be.
4. Choose your refinance loan type
Types of refinance loans
| Refinance type or program | Choose this refinance if: |
|---|---|
| Rate-and-term refinance | You want to lower your rate or reduce your loan term and roll the closing costs into your loan |
| Streamline refinance | You currently have an FHA, VA or USDA loan and want to refinance without providing income documents or paying for an appraisal |
| Cash-out refinance | You want to borrow more than you currently owe and pocket the cash difference for home improvements, debt consolidation or another large expense |
| Renovation refinance | You want to roll the cost of major home improvements into one loan and borrow the money based on your home’s after-improved value |
Read more about these and other refinance options.
5. Shop around for refinance loan offers
With your refi plan taking shape, you’re ready to take the next steps to pick the right loan program and refinance lender.
The data is clear: Recent LendingTree studies show that borrowers who shop around for a mortgage save thousands of dollars in interest and closing costs. Gather loan estimates from at least three to five lenders, and see which one can offer you the best deal.
Remember: Rates change daily, so gather all of your quotes on the same day for a true apples-to-apples comparison.
LendingTree is a free, safe, and secure way to quickly compare rate quotes from a network of vetted refinance lenders.
When banks compete, you win.
Get started by filling out our form below to see competitive mortgage refinance rate offers today.
6. Calculate your break-even point
Use LendingTree’s refinance calculator to find your break-even point.
Your refinance break-even point is the number of months it will take to recoup your refinance costs.
The break-even point shows you whether a refinance makes financial sense. If you sell your home before or right at that break-even point, you won’t save any money — and you could actually lose some.
Even if you’re planning to stick around past the break-even point, that doesn’t mean you should automatically refinance. Think about how much longer you’d need to stay for the refinance to bring true savings.
Beyond the break-even point, here are four other key calculations you might want to do as you assess your financial situation:
- Monthly savings. Figure out exactly how much your monthly payment will change after factoring in the new principal, interest, taxes and insurance amounts. Don’t forget that property taxes and homeowners insurance costs might have changed since you first bought your home, especially if you’re switching into a conventional loan that will require private mortgage insurance (PMI) if you don’t have 20% equity.
- Total interest savings over the life of the loan. Compare how much total interest you’ll pay on your current loan versus the new one. Sometimes a lower monthly payment doesn’t mean you’ll save money overall, especially if you’re extending your loan term.
- Cash-out considerations. If you’re taking cash out, factor in how the larger loan balance affects your monthly payment and total interest costs. Plus, consider what you’ll do with that cash — will it generate returns that might justify the higher mortgage costs? Or, if you’re using the cash to pay off debt, be sure it fits into your debt payoff strategy.
- Opportunity costs. Consider what else you could do with the money you’re spending on closing costs. Could you invest it elsewhere for a better return than what you’re saving on your mortgage?
7. Request a mortgage rate lock
Your rate isn’t guaranteed until it’s locked in. Frequently asked questions about mortgage rate locks include:
-
How do I lock my interest rate?
Once you’ve chosen a lender, ask them to lock in the quoted rate. The lender will request the lock and send you an updated loan estimate confirming the lock. Keep track of the lock expiration date — if your loan doesn’t close by then, you might be on the hook for lock extension fees. -
How long can I lock in my rate?
Most lenders offer rate locks of up to 60 days. However, the shorter the lock, the better the rate, so get your paperwork in quickly and stay in contact with your loan officer during the refinance process. -
Can my rate change after it’s locked?
Yes. Some common reasons include a lower-than-expected appraisal value, a change in your credit score or a loan program switch.
Don’t know your credit score? Get your score for free on LendingTree Spring today.
8. Plan for your closing
Your lender must send you a closing disclosure at least three business days before you close. Look it over carefully to make sure the interest rate, closing costs and property details are right.
After you sign at closing, you get another three days to change your mind without penalty. This is called your “right of rescission.” If you decide the refinance isn’t worth it, you can cancel anytime before midnight on the third day. If everything looks good and you don’t cancel, your old mortgage gets paid off and your new one starts up.
How long does it take to refinance a house?
| Refinance type | Average time to close |
|---|---|
| Conventional refinance | 41 days |
| FHA refinance | 44 days |
| FHA streamline refinance | 20 to 30 days |
| FHA cash-out refinance | 50 to 60 days |
| Conventional cash-out refinance | 45 to 60 days |
| VA IRRRL (streamline refinance) | 20 to 35 days |
| VA cash-out refinance | 45 to 55 days |
| Jumbo refinance | 50 to 70 days |
For more details on these refinance loan programs, jump back up to our section on the types of refinance loans available.
How to get the best refinance mortgage rates
- Boost your credit score to 780 or higher. Keep your credit balances low and pay everything on time.
- Borrow less equity. Borrowing less of your home’s value – having a lower loan-to-value (LTV) ratio – will likely snag you a better rate.
- Consider an adjustable-rate mortgage (ARM). If you plan to move in a few years, an ARM loan features a lower fixed rate for an introductory period that could save you money while you’re preparing to sell your home.
- Pick a shorter term. You’ll typically get a lower rate if you choose a shorter term, such as a 15-year mortgage. It will, however, come with a monthly payment that’s likely several hundred dollars higher than with a 30-year repayment term.
- Pay for mortgage points. One mortgage point equals 1% of your loan amount, and paying for points can buy you a lower interest rate.
- Shop with three to five lenders. Homeowners who compare offers from at least three to five lenders often get the lowest rates.
Frequently asked questions
Conventional lenders typically don’t set a minimum waiting period for a rate-and-term refinance after you close, but you must wait at least twelve months if you choose a cash-out refinance.
An FHA streamline refinance requires that you wait at least six months to be eligible, and 12 months if you’re taking cash out. VA borrowers must wait at least 210 days before refinancing, regardless of whether they’re pursuing a rate-and-term or cash-out refinance.
For more info, check out our guide to how soon you can refinance.
Yes, you can lower your monthly payment without refinancing. You may want to get a mortgage recast, shop around to save on homeowners insurance, dispute your property tax bill, rent out part of your home or get a loan modification.
You can refinance a mortgage with bad credit, but you should expect to pay a higher interest rate. FHA loans allow you to refinance with a score as low as 500 and a minimum 10% in home equity. If you’re eligible for a VA refinance, there’s no minimum credit score requirement, although lenders often set their own guidelines to at least 620.
Because refinance lenders check your credit, you might see a temporary dip in your score of up to five points. Try to do all of your shopping within a 14-day period to avoid a bigger drop because of multiple credit inquiries.
If you don’t qualify for a refinance, a mortgage loan modification may be your best or only option. Lenders usually won’t modify your loan unless you’re already delinquent, however.
Yes, you can, and a condo refinance is very similar to any other refinance. There’s just one extra step: your lender will evaluate your condo association to make sure that it meets the loan program’s requirements and is in good standing. Lenders may not want to lend to you if the condo association doesn’t look stable and well-run.