Mortgages & Home Loans The Best Way To Refinance Your Mortgage Learn how refinancing can save you money By Carissa Rawson Carissa Rawson Carissa Rawson is a personal finance and credit cards expert who has been featured in numerous publications, including Forbes, Business Insider, and The Points Guy. Carissa earned a bachelor's from the American Military University and has an MBA from Norwich University, an M.S. from the University of Edinburgh, and is currently pursuing an MFA from National University. learn about our editorial policies Updated on January 25, 2022 Reviewed by Doretha Clemon Reviewed by Doretha Clemon Doretha Clemons, Ph.D., MBA, PMP, has been a corporate IT executive and professor for 34 years. She is an adjunct professor at Connecticut State Colleges & Universities, Maryville University, and Indiana Wesleyan University. She is a Real Estate Investor and principal at Bruised Reed Housing Real Estate Trust, and a State of Connecticut Home Improvement License holder. learn about our financial review board Fact checked by Rebecca McClay Fact checked by Rebecca McClay Rebecca McClay is a financial content editor and writer specializing in personal finance and investing topics. For more than 15 years, she's produced money-related content for numerous publications such as TheStreet and MarketWatch, and financial services firms like TD Ameritrade and PNC Bank. She covers topics such as stock investing, budgeting, loans, and insurance, among others. learn about our editorial policies Share Tweet Pin Email In This Article View All In This Article When To Refinance Your Mortgage Preparing To Refinance How To Refinance Your Mortgage Frequently Asked Questions (FAQs) Photo: MoMo Productions / Getty Images If you have a mortgage, you may consider refinancing at some point for a number of reasons. For one, refinancing can save you a significant amount of money when you can get a lower interest rate. Other motives to refinance include withdrawing equity, adjusting the length of your loan, or changing other terms of your mortgage. When refinancing, you use money from a new loan to pay off an existing loan. You will have to go through a loan-approval process again. But for many homeowners, this process is worthwhile. Let’s take a look at when refinancing your mortgage makes sense, how to prepare yourself for it, and what steps you’ll need to take. Key Takeaways Refinancing can save you money on your mortgage, though there are closing costs associated with originating a new loan.The process of refinancing is very similar to applying for your original mortgage. You’ll need to meet specific requirements to qualify.Calculating the break-even point for your new loan reveals how long it will take you to recoup the cost of refinancing. When To Refinance Your Mortgage There are plenty of times when it can make sense to refinance your mortgage. You may want to take advantage of lower interest rates than your current mortgage has to save money. You may also want to withdraw equity from your home, which would provide you with cash to use for, say, home renovations or your child’s college expenses. Refinancing also allows you to adjust the terms of your mortgage. For example, you may want to change a 30-year mortgage into a 15-year mortgage, or vice versa. Or you may want to replace an adjustable-rate mortgage (ARM) with one that has a fixed rate. Note Be aware that refinancing your mortgage comes with closing costs, just like you faced with your initial mortgage. You may pay them upfront or roll them into a new loan, but either way, they are an expense. Be sure that the cost to refinance will be worth it. You can calculate your break-even point to help you determine how long it will take to recoup the costs of refinancing and whether that will be worthwhile to you. Preparing To Refinance If you’ve decided that refinancing would be a good option for you, prepare for the process to ensure that it goes smoothly. Here are a few steps you’ll want to consider taking: First, determine what type of refinance you will need. If you simply want to adjust the interest rate or the term (or both), you will need a rate and term refinance, also known as a traditional or regular refinance. If you want to tap your equity for cash that you can use for other reasons, choose a cash-out refinance. Second, make sure you understand your finances. Banks have strict requirements when it comes to mortgages, and refinances are no exception. Knowing your credit score and your debt-to-income ratio can help you understand what you may qualify for before you apply. You can get a free annual credit report at AnnualCreditReport.com. Finally, consider shopping around for mortgage rates. Interest rates can vary from bank to bank, so it’s always a good idea to compare multiple options and determine which one fits your financial situation the best. Note Refinancing with your existing bank could be your best option. Banks don’t want to lose customers, and some may even offer incentives, such as a discount on closing costs, to keep your loan in-house. How To Refinance Your Mortgage Once you are ready to move forward, you should be familiar with some common steps for the refinancing process that homeowners take. Gather Your Documents A refinance will require plenty of documentation. This will include bank statements, pay stubs, and tax returns, among any other financial documents the bank asks for. Having these on hand can help the process go forward more smoothly and quickly. Contact Your Lender After shopping around, you’ll want to contact the lender with whom you want to refinance. They can guide you on their specific requirements for completing their application. Make sure you read all the terms and conditions of their contract so you understand their particular fees. Lock In Your Interest Rate Most mortgage lenders will allow you to lock in your interest rate for your new loan. Interest rates move up and down with the market. The amount of time during which lenders will let you lock in your rate can vary, but it will typically range from 30 to 60 days. Some lenders may allow you to lock the rate for up to 120 days. Note Locking in an interest rate protects you from any rate increases but still allows you to negotiate a lower interest rate if interest rates fall. Avoid Opening New Credit Try to avoid applying for any new credit—like a personal loan, car loan, or credit card—when you’re refinancing. Importantly, this can affect your credit score or alter your debt-to-income ratio, which can affect whether you qualify for a refinance. Lenders will check your credit score both when you apply and before closing, so they’ll see if anything has changed. Adding new credit can indicate to lenders that you’re struggling to meet your financial obligations. This can, in turn, lead them to lose confidence in your ability to repay. Prepare To Close Once you’ve been approved for a refinance, it’s time to prepare for closing. Some lenders may allow you to roll the closing costs of refinancing into your new loan. Otherwise, you’ll need to have cash on hand to fund the close. After the refinance closes, your new loan will pay off your old mortgage and take its place. Frequently Asked Questions (FAQs) How long does it take to refinance a house? Depending on your bank, it can take anywhere from 30 to 90 days to complete a refinance. The length of time it takes depends on the length of time it takes each step of the process. That includes the review of your financial documents and, if required, an appraisal. How much does it cost to refinance a house? The cost to refinance your mortgage will vary depending on your lender’s fees. Common charges include appraisal fees, lending fees, origination fees, escrow and title fees, and property taxes, among others. How long do you have to wait to refinance? The waiting period from the time you take out your mortgage to the time you may refinance will vary. In many cases, you will refinance immediately, though some loans may require a waiting period. The FHA loan, for example, requires a 210-day waiting period before being eligible for an FHA streamline refinance. Was this page helpful? Thanks for your feedback! Tell us why! Other Submit Sources The Balance uses only high-quality sources, including peer-reviewed studies, to support the facts within our articles. Read our editorial process to learn more about how we fact-check and keep our content accurate, reliable, and trustworthy. Federal Trade Commission. "Shopping for a Mortgage FAQs." U.S. Bank. "Flip the Switch on Your Current Mortgage With a Refinance." Experian. "6 Steps to Refinancing Your Home Mortgage." Freddie Mac. "No Cash-Out Refinance Mortgages." Federal Deposit Insurance Corporation. "Streamline Refinance," Page 2.