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How to Refinance Your Mortgage : All You Need to Know

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When you refinance your mortgage, you get a new loan to pay off the old one. Most of the time, people refinance to lower their interest rates or monthly payments or use the equity in their homes. Others refinance a home to repay the loan faster, or get out of FHA mortgage insurance, or switch from an adjustable-rate loan to a fixed-rate loan. Read to know more about how to refinance your mortgage. 

How to refinance your mortgage 

  • Have a clear financial goal 

Refinancing should be done for a good reason. Like lowering your monthly payment, shortening your loan length, taking out equity for home repairs, or paying off debt. If you lower your interest rate but start the clock over on a 30-year mortgage, you will pay less each month but more over the life of the loan. Most of the interest you pay on a mortgage is paid in the first few years. 

  • Go through your credit score and history 

You’ll have to meet the same requirements for a refinance as you did for your first home loan. Know that the higher your credit score, the better refinance rates lenders will give you. And the more likely it is that underwriters will approve your loan.  

For a conventional refinance, you need a credit score of at least 620. For an FHA or VA refi mortgage, some lenders will accept a score of 580. But you won’t be able to borrow as much. You can refinance your mortgage even if you have bad credit, but if you can, try to raise your score for a few months before you start the process. 

  • Figure out how much home equity you have 

Subtract the value of your home from the amount you still owe on your mortgage is your home equity. Check your mortgage statement to see how much you still owe on it. Then, look at online home search sites or talk to a real estate agent to get an idea of what your home is worth now. The difference between these two numbers is your home equity. 

You might be able to refinance a conventional loan with as little as 5 percent equity, but if you have at least 20 percent equity, you’ll get better rates and fewer fees and won’t have to pay PMI. The less risky a loan is for the lender, the more equity you have in your home. 

  • Shop around and compare multiple lenders 

You can save a lot of money by getting quotes from at least three mortgage lenders. Once you’ve chosen a lender, talk to them about the best time to lock in your rate so you don’t have to worry about rates going up before your loan closes. 

In addition to comparing interest rates, pay attention to the different loan fees and whether they will be due upfront or rolled into your new mortgage. Lenders sometimes offer refinances with no closing costs but to make up for it, they raise the interest rate or add to the loan balance. 

  • Get your documents ready 

Gather recent pay stubs, federal tax returns, bank/brokerage statements, and anything else your mortgage lender asks for. Your credit score and net worth will also be looked at, so tell your lender about all your assets and debts right away. If you have all of your paperwork ready before you start the refinancing process, it can go more smoothly and often faster. 

  • Get ready for your home appraisal 

A home appraisal, similar to the one done when you bought your house, is usually required by mortgage lenders to determine how much your house is on the market right now. An outside appraiser will figure out how much your home is worth based on certain criteria and how much similar homes recently sold in your neighborhood went for. 

The cost of the appraisal will be a few hundred dollars. If you tell the lender or appraiser about any changes, additions, or major repairs you’ve made to your home since you bought it, the appraisal could go up. 

  • Opt for closing with cash if necessary 

Both the closing disclosure and the loan estimate will show how much the extra costs of closing the loan will be. You might have to pay 3–5% of the total loan amount at the end. What to think about: You might be able to pay for the costs, which can be several thousand dollars, by spreading them out over the life of your loan. But you will probably pay more for it in the long run because the interest rate or total loan amount will be higher. If you can afford it, paying up front is usually better. 

  • Be on track with your loan  

Keep copies of your closing documents in a safe place and set up automatic mortgage payments to make sure you always pay on time. Some banks will also lower your rate if you set up automatic payments. What to think about: Your lender or servicer could resell your loan on the secondary market right after closing or years later. That means you’ll have to pay your mortgage to a different company. Keep an eye out for mail telling you about these changes. The terms themselves, though, shouldn’t change. 

How to get the best refinance rates 

  • Boost your credit score to 780 or higher

Keep your balances on credit cards low and pay your bills on time. There is some good news for borrowers with low credit scores, though: After the new rate changes we talked about above take place, you may get a lower rate. 

  • Borrow less equity 

When the new refinance price changes go into effect in 2023, you’ll probably get a better rate if you borrow less of your home’s value. 

  • Consider an adjustable-rate mortgage (ARM) 

If you plan to move in a few years, an ARM loan could save you money by giving you a lower initial rate for a set amount of time. This could help you save money while you get your home ready to sell. 

  • Pick a shorter term 

Most of the time, a shorter term, like 15 years, will get you a lower rate. If you can afford the higher monthly payment, you’ll save thousands of dollars over the life of your loan, build equity faster, and get closer to paying off your mortgage faster. 

  • Pay points 

A mortgage point is equal to 1% of the total amount of your loan, and if you pay for points, you can get a lower interest rate. 

  • Shop with three to five lenders

Talk to three to five different lenders. Homeowners often get the best rates when they look at offers from at least three to five lenders. 

  • Check your APR

Check the annual percentage rate (APR) on any offers you get. APR shows how much it will really cost to refinance a home. Your closing costs will generally be higher if the difference between your APR and interest rate is larger. 

How long does it take to refinance a mortgage? 

Considering the type of loan you choose, refinancing a mortgage can take anywhere from 45 to 60 days. It usually takes longer to close on a conventional loan than on a government-backed loan. To avoid delays, make sure to fill out the application as accurately as possible, send any requested documents on time, and be ready for the home appraisal, if required. 

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Bottom line 

You’re ready to shop lenders and compare refinance rates once you’ve identified why you want to refinance and the type of loan you desire. Get quotes from at least three different types of lenders and compare their rates and any fees or other charges that may add to the final cost of the loan. 


What are the steps to refinancing a mortgage? 

  • Set a clear financial goal 
  • Check your credit score and history 
  • Determine how much home equity you have 
  • Shop multiple lenders 
  • Get your paperwork in order 
  • Prepare for your home appraisal 
  • Come to closing with cash if needed 
  • Keep tabs on your loan 

Can you refinance a mortgage at any time? 

There is no legal limit to how many times you can refinance your mortgage. Mortgage lenders, on the other hand, have a few mortgages refinance standards that must be completed each time you apply, and there are some additional considerations to keep in mind if you want a cash-out refinance. 

What does it mean to refinance a mortgage? 

Refinancing a house loan entail obtaining a new loan from a different lender to pay off an old one. 

How much equity do I need to refinance? 

When it comes to refinancing, you should have at least 20% equity in the home. Yet, if your equity is less than 20% and you have a strong credit score, you may still be eligible to refinance.

Monthly payments getting unmanageable? Try refinancing. With Way.com, you get the best refinance options available to you. Use our refinance loan calculator, compare the loan rates, prequalify, and save up to $1850 a year on your refinanced auto loan.

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