Home Refinancing FAQs
This information is not designed to provide any legal advice. We strongly urge homeowners to consult an attorney of your choice to fully understand your rights.
If you’re a homeowner with a mortgage, you may have considered refinancing—especially when mortgage rates sank in recent years. Refinancing can carry significant short and long-term benefits, but only if you’re able to continue making timely payments on any new loan.
Mortgage lenders typically offer multiple refinancing options, depending on your financial and personal goals. You should consider all options before proceeding with any refinancing application, especially if it would significantly impact your debt-to-income ratio.
Why refinance?
Refinancing your home can offer better terms, lower payments, or added cash for projects.
- If interest rates are currently lower than your existing rate, you could refinance and lock in the lower rate. This could reduce your monthly payments without reducing the term of your loan.
- If your income allows for a higher monthly payment, you could refinance to reduce the term of your loan. Reducing a 30-year loan to a 15-year loan, for example, would save you thousands (or even tens of thousands) of dollars in interest.
- If you initially took out an adjustable-rate mortgage (ARM), you could refinance to a fixed-rate mortgage with a consistent monthly payment. Or, you could switch from a fixed-rate to an ARM with better terms.
- If you need extra cash, either for a home project or to consolidate debt, a cash-out refinance would provide an instant cash infusion from your home’s equity.
- If you’re currently paying mortgage insurance on an FHA-managed loan, you could refinance to remove that payment when you’ve accumulated enough equity.
How can I refinance?
Each lender might have different refinancing processes, but generally, you’ll follow a similar process to a standard mortgage application. Refinancing applications require a credit check, a survey and title search, a home appraisal, and an inspection. This process could take several weeks, and you’ll likely need to pay for all these services before or at closing.
You’ll also need to supply documentation for your current income, as well as any existing debts. If your financial situation has dramatically changed since you took out the original mortgage, you might not have the same options available.
Some lenders may offer ‘no-cost’ refinancing to avoid paying up-front fees. This may sound appealing, but those fees could be deferred or rolled directly into your loan. Always ask your lender to explain all the fees and penalties associated with a no-cost loan.
Should I refinance?
Like any major financial decision, refinancing a mortgage depends on your personal goals. But as a general rule, refinancing can be worthwhile if you can get an interest rate at least two percentage points lower than your current rate.
Even if rates are similar, some lenders may offer reduced fees or lender credits to help you save money. When shopping for a new loan, talk to your current lender, compare loans before deciding, get any information in writing, use newspapers and the Internet to shop around, and be careful with advertisements that entice you with low initial interest rates and monthly payments.
To help determine if it is worth it, ask yourself these questions:- How much lower (or higher) will my monthly payment be?
- How long do I plan to stay in the house?
- How much are the refinancing costs?
- How much do I still owe on the house?
- How much did I initially pay for the house?