Mortgage Refinancing

Mortgages last a long time, so it’s not uncommon to adjust the loan structure as your life changes. Learn when it makes sense to refinance your mortgage, how much you can save, and how much it costs.

The Balance’s Guide to Mortgage Refinancing

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Is Now the Time to Refinance?
Frequently Asked Questions
  • How does refinancing a mortgage work?

    The simplest answer is that a mortgage refinance works by giving the borrower access some of the equity in the property. This is the amount of value in the home the borrower owns (the rest of the value is covered by the loan itself). The borrower can use that equity to reduce the interest (and/or the term) of the loan by refinancing into a new, cheaper loan and paying off the old one. Or they can convert their equity to cash to use for home improvements or anything else. Or both.

  • What is a mortgage refinance?

    A mortgage refinance allows you to replace an existing mortgage with a new one. The refinance can result in lower monthly payments, a reduced interest rate, or a shorter payoff term. You can even withdraw some of the value you’ve amassed in the home (the “equity”) and use it for renovations, or anything else.

  • How do you lower a mortgage payment without refinancing?

    You can reduce your mortgage payment without refinancing in a couple of ways. If you’re paying private mortgage insurance and have 20% equity or more in the property, you can ask your lender to end coverage and remove the charge from your payment. You can also ask your lender for a loan modification that reduces your payments. To do so, your lender may change the length of the loan, the interest rate, or even the principal amount. 

  • When should you refinance your mortgage?

    The short answer is refinancing makes sense when doing so will save you money or allow you to make better use of your equity. But there are a lot of factors to consider before you refinance—and some math to do. Are you after a lower monthly payment or are you looking to shorten the length of the loan? Can you take advantage of lower interest rates? What will you do with the equity you withdraw? Will you be in the home long enough to recoup the costs of a refinance? 

  • What should you ask your lender when you refinance your mortgage?

    Ask your lender about the types of loans they offer and what ones are best for you. Get answers about interest rates and APRs. Ask about fees, discount points, and any other costs associated with the loan. Find out how long the process will take. Finally, if there is anything you are unsure about—ask about that. Your lender should be happy to explain.

  • How much are closing costs when you refinance a mortgage?

    The cost to refinance varies depending on the amount you’re refinancing, your credit score, and other factors. These costs consist of a variety of fees you’ll pay throughout the process—appraisal fees, application fees, origination fees. In general, though, you can expect to pay between 3% and 6% of the amount refinanced in closing costs. Some fees are negotiable, so you may be able to trim your closing costs.   

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