The Complete Guide to Mortgage Refinancing

With interest rates fluctuating, many homeowners consider refinancing their mortgage for better terms. But what exactly is mortgage refinancing and how does it work? This article covers everything you need to know about the mortgage refinancing process.

What is Mortgage Refinancing?

Mortgage refinancing involves taking out a new mortgage loan to pay off your existing home loan. This is done to change the terms of the original mortgage for more favorable conditions like a lower interest rate, reduced monthly payments, shorter loan length, or to access your home’s equity.

How Does the Mortgage Refinance Process Work?

Refinancing follows many of the same steps as getting approved for an initial home purchase mortgage:

• Research new loan terms and interest rates and connect with a lender. Rates and lender fees can vary significantly, so shop around.
• Complete a loan application providing financial, income, employment, and property information for the lender.
• The lender will appraise the home’s current value and evaluate your financial qualifications.
• Once approved, you’ll lock in an interest rate before closing on the refinanced mortgage.
• Your new lender pays off and closes your old mortgage. The new loan’s terms replace the old mortgage.
• Legal title remains in your name. You continue making monthly principal and interest payments to the new lender.

When Does Refinancing Make Sense?

The most common motivations for refinancing include:

• Lowering your interest rate and monthly payments
• Shortening your loan terms from 30 to 15 years
• Converting from an adjustable to fixed interest rate
• Tapping into home equity through a cash-out refinance

Consider refinancing when interest rates drop, your credit score improves, or equity increases substantially. Crunch the numbers to see if terms are sufficient to justify refinancing costs.

Refinancing Costs to Factor In

Refinancing comes with closing costs including:

• Loan origination fees
• Points paid to receive a lower interest rate
• Attorney fees
• Appraisal fees
• Recording fees

Consider if lower rates or monthly savings offset these closing costs long-term. Review total costs versus savings over the life of the loan.

With mortgage rates constantly in flux, refinancing is an advantage to research. Understanding the refinancing process and costs allows you to strategically access better loan terms and savings.