Refinancing

Mortgage Refinancing Guide

When to refinance, how the process works, and how to determine if refinancing makes financial sense for you.

NMHL Team2026-01-0811 min read

What Is Mortgage Refinancing?

Mortgage refinancing replaces your existing home loan with a new one, typically to secure a lower interest rate, change your loan term, switch from an adjustable rate to a fixed rate, or access your home equity through a cash-out refinance. When you refinance, you are essentially paying off your old mortgage and starting a new one with different terms. The new loan pays off the balance of your existing mortgage, and you begin making payments on the new loan. Refinancing can save you thousands of dollars over the life of your loan when done at the right time and for the right reasons.

Homeowners who refinance at the right time save an average of $150-$300 per month on their mortgage payments.

Types of Refinance Loans

There are several types of refinance options available. A rate-and-term refinance changes your interest rate, loan term, or both without taking cash out. A cash-out refinance lets you borrow more than your current balance and receive the difference in cash, which can be used for home improvements, debt consolidation, or other needs. An FHA streamline refinance simplifies the process for existing FHA borrowers with reduced documentation. A VA Interest Rate Reduction Refinance Loan (IRRRL) offers similar streamlined benefits for VA borrowers. Each type serves different financial goals and has unique qualification requirements.

Key Tips

  • Rate-and-term refinances typically have the lowest closing costs and simplest approval process
  • Cash-out refinances usually require at least 20% equity remaining after the new loan
  • Streamline refinances for FHA and VA loans may not require a new appraisal

When Should You Refinance?

The decision to refinance depends on several factors. The traditional rule of thumb is to refinance when you can lower your rate by at least 0.5-1%. However, the real question is whether your savings will exceed the costs of refinancing within your expected time in the home. Consider refinancing if interest rates have dropped since you obtained your current loan, your credit score has significantly improved, you want to eliminate mortgage insurance, you need to switch from an adjustable rate to a fixed rate for payment stability, or you want to shorten your loan term to build equity faster and pay less total interest.

Calculate your break-even point by dividing your total refinancing costs by your monthly savings. If you plan to stay in the home beyond that point, refinancing likely makes sense.

Refinancing Costs and Break-Even Analysis

Refinancing is not free. Typical costs include application fees, origination fees, appraisal fees, title insurance, and closing costs that generally range from 2-5% of the new loan amount. Some lenders offer no-closing-cost refinances where fees are either rolled into the loan balance or covered by a slightly higher interest rate. To determine if refinancing is worthwhile, calculate your break-even point. For example, if refinancing costs $4,000 and saves you $200 per month, your break-even point is 20 months. If you plan to stay in the home longer than 20 months, the refinance pays for itself.

Key Tips

  • Ask your lender about no-closing-cost refinance options that roll fees into the loan
  • Compare at least three lender quotes to ensure competitive pricing
  • Factor in all costs including appraisal, title, and origination fees when calculating break-even

The Refinance Process

The refinance process is similar to obtaining your original mortgage. You will apply with a lender, provide financial documentation, have your home appraised, and close on the new loan. The timeline is typically 30-45 days from application to closing. Start by shopping rates from multiple lenders. Once you choose a lender, submit your application with recent pay stubs, W-2s, tax returns, and bank statements. The lender will order an appraisal to confirm your home's current value. After underwriting approval, you will review and sign the closing documents. You have a three-day right of rescission after closing during which you can cancel the refinance if you change your mind.

Key Tips

  • Lock your interest rate once you find a favorable rate to protect against market fluctuations
  • Continue making payments on your existing mortgage until the refinance officially closes
  • Take advantage of the three-day rescission period to review all final terms carefully
Couple holding their new home key

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Related Guides

Understanding Mortgage Rates

Learn how mortgage rates work and what drives rate changes.

Home Equity Guide

Understand your home equity options and how to access them.

Closing Costs Explained

A detailed breakdown of all closing costs involved in refinancing.

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Frequently Asked Questions

Refinancing typically costs 2-5% of the new loan amount. On a $300,000 loan, expect $6,000-$15,000 in closing costs. Some lenders offer no-closing-cost options where fees are rolled into the loan balance. Always compare the total cost against your expected savings.

Technically, you can refinance as often as you want, though there may be waiting periods. Conventional loans have no mandatory waiting period. FHA streamline refinances require at least 210 days since the last closing. VA IRRRLs require at least 210 days. Each refinance incurs closing costs, so ensure the savings justify the expense.

Refinancing may temporarily lower your credit score by 5-10 points due to the hard credit inquiry and new account. However, this impact is typically minor and short-lived. If refinancing reduces your monthly obligations, it can actually improve your credit over time by lowering your debt-to-income ratio.

Yes, though your options may be more limited. FHA streamline refinances have no minimum credit score requirement for existing FHA borrowers. For other refinance types, you generally need a minimum score of 580-620. NMHL can help you explore all available options regardless of your current credit situation.

Related Resources

Understanding Mortgage Rates

Learn how mortgage rates work and what drives rate changes.

Home Equity Guide

Understand your home equity options and how to access them.

Closing Costs Explained

A detailed breakdown of all closing costs involved in refinancing.

Conventional Loans

Conventional loans are not backed by government agencies and typically offer the most flexibility for qualified borrowers. With options for as little as 3% down and the ability to cancel mortgage insurance, conventional loans are ideal for borrowers with good credit.

FHA Loans

Federal Housing Administration (FHA) loans are government-backed mortgages designed to help first-time homebuyers and those with less-than-perfect credit achieve homeownership. With lower down payment requirements and flexible credit guidelines, FHA loans make homeownership accessible to more Americans.

VA Loans

VA loans are a benefit earned by veterans, active-duty service members, and eligible surviving spouses. Backed by the Department of Veterans Affairs, these loans offer unmatched benefits including no down payment, no mortgage insurance, and competitive rates.

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