How to refinance your mortgage: a step-by-step guide

What is mortgage refinancing?

Mortgage refinancing means replacing your current home loan with a new one, typically to get a lower interest rate, change your loan term, or switch from an adjustable rate to a fixed rate. When you refinance, your new lender pays off the existing mortgage, and you start making payments on the replacement loan under its new terms.

Refinancing is not the same as a loan modification, which changes the terms of your existing loan without replacing it. It is also different from a home equity loan or HELOC, which are additional loans taken against your home's equity rather than replacements for your primary mortgage.

The most common type is a rate-and-term refinance, where the goal is to secure better interest rate or payment terms. A cash-out refinance lets you borrow more than you owe and take the difference in cash, which can be useful for home improvements or consolidating high-interest debt.

Whether refinancing makes financial sense depends on several factors: how much you can lower your rate, how long you plan to stay in the home, your closing costs, and your current financial situation. This guide walks through every step so you can make an informed decision.

Step 1: Check your current loan details

Before you start shopping for a new loan, you need to know exactly where you stand with your current mortgage. Gather the following information from your most recent mortgage statement or by calling your loan servicer:

• Current interest rate: This is the annual percentage rate on your existing loan, not the APR (which includes fees).
• Remaining loan balance: The principal amount you still owe.
• Monthly payment: Your current principal and interest payment (not including taxes and insurance).
• Remaining term: How many months or years are left on your current loan.
• Loan type: Whether you have a conventional, FHA, VA, or USDA loan, and whether it is fixed-rate or adjustable.
• Prepayment penalty: Some older loans charge a fee for paying off the mortgage early. Check your loan documents or ask your servicer.

Having these numbers ready will make it much easier to compare offers and determine whether refinancing saves you money. You can enter them directly into our refinance savings calculator to get an instant estimate.

Step 2: Determine your refinancing goal

People refinance for different reasons, and your goal will shape which loan products and terms make the most sense. The most common refinancing goals include:

Lower your monthly payment

This is the most popular reason to refinance. By securing a lower interest rate or extending your loan term (or both), you can reduce what you pay each month. A lower payment frees up cash flow for other financial goals. Use the refinance calculator to see exactly how much your payment could drop.

Pay off your mortgage faster

If rates have dropped enough, you may be able to switch from a 30-year to a 15-year mortgage without a large increase in your monthly payment. This can save you tens of thousands of dollars in total interest over the life of the loan.

Switch from adjustable to fixed rate

If you have an adjustable-rate mortgage (ARM) and are concerned about future rate increases, refinancing to a fixed-rate loan locks in a predictable payment for the remaining life of the loan.

Access cash from your equity

A cash-out refinance lets you tap into the equity you have built in your home. This can be used for home improvements, debt consolidation, or other major expenses. Keep in mind that this increases your loan balance and may raise your monthly payment.

Step 3: Check your credit score and DTI

Your credit score and debt-to-income ratio (DTI) are the two most important factors lenders use to determine your eligibility and the rate you will receive. Before applying, take time to review both.

Credit score requirements

Most conventional refinances require a minimum credit score of 620, though you will typically need 740 or higher to qualify for the best available rates. FHA refinances may accept scores as low as 580 in some cases. You can check your credit score for free through your bank, credit card issuer, or services like Credit Karma.

If your score is lower than you would like, consider taking a few months to improve it before applying. Paying down credit card balances, correcting errors on your credit report, and avoiding new credit inquiries can all help raise your score.

Debt-to-income ratio

Your DTI measures how much of your gross monthly income goes toward debt payments. Most lenders prefer a DTI of 43% or lower for a refinance, though some programs may allow up to 50% in certain circumstances. To calculate yours, add up all your monthly debt payments (mortgage, car loans, student loans, minimum credit card payments) and divide by your gross monthly income.

Step 4: Shop and compare lenders

This is one of the most important steps, and one that many borrowers skip. According to Freddie Mac research, borrowers who get at least one additional rate quote save an average of $1,500 over the life of the loan. Getting five quotes can save $3,000 or more.

When comparing lenders, look at more than just the interest rate. Pay attention to:

• APR (Annual Percentage Rate): This includes both the interest rate and fees, giving you a more complete picture of the total cost.
• Closing costs: These typically range from 2% to 5% of the loan amount. Ask each lender for a Loan Estimate, which breaks down all costs in a standardized format.
• Points and credits: Discount points let you pay upfront to lower your rate. Lender credits do the opposite, covering some closing costs in exchange for a slightly higher rate.
• Lock period: How long the lender will guarantee your quoted rate (typically 30 to 60 days).
• Processing time: How quickly the lender can close. If speed matters, this is worth asking about.

Check our lender comparison page for an independent overview of top refinance lenders. Multiple applications within a 14 to 45 day window (depending on the scoring model) typically count as a single credit inquiry, so do not be afraid to shop around.

Step 5: Lock your rate

Once you have chosen a lender and are satisfied with the offered rate, ask to lock it in. A rate lock guarantees that your interest rate will not change between now and closing, even if market rates move higher. Most locks last 30 to 60 days, though longer lock periods may be available (sometimes for a small fee).

There are a few things to know about rate locks:

• A rate lock protects you if rates rise, but it also means you will not benefit if rates drop (unless your lock includes a float-down option).
• If the lock expires before closing (due to delays), you may need to pay to extend it or accept the current market rate.
• Get the rate lock agreement in writing, including the rate, lock period, any points or fees, and expiration date.

Timing matters. If you believe rates may continue to drop, you could choose to float (not lock) and hope for a better rate. However, this is a gamble: rates can also rise. For most borrowers, locking in a rate that meets your financial goals is the safer choice.

Step 6: Complete the application and appraisal

After locking your rate, you will complete the full loan application. Your lender will ask for documentation to verify your income, assets, and debts. Common documents include:

• Two most recent pay stubs
• W-2s or 1099s from the past two years
• Two most recent months of bank statements
• Federal tax returns from the past two years (if self-employed)
• Current homeowners insurance declaration page
• A copy of your most recent mortgage statement

The lender will also order a home appraisal to confirm your property's current market value. The appraisal typically costs between $300 and $600, and you will usually pay for it upfront. The appraiser will visit your home, assess its condition, and compare it to recent sales of similar properties in your area.

If the appraisal comes in lower than expected, it can affect your loan-to-value ratio and potentially your rate or eligibility. In that case, you may be able to challenge the appraisal, bring additional comparable sales data, or negotiate with your lender.

Step 7: Close on your new loan

At least three business days before closing, your lender is required to send you a Closing Disclosure. This document details the final terms of your new loan, including the interest rate, monthly payment, and all closing costs. Compare it carefully to the Loan Estimate you received earlier and ask about any discrepancies.

At the closing itself, you will sign the new loan documents and pay any closing costs that are not being rolled into the loan. After closing, there is typically a three-day right of rescission period during which you can cancel the refinance without penalty. This right applies to most refinances of your primary residence.

Once the rescission period passes, your old mortgage is paid off and your new loan begins. Your first payment on the new mortgage is typically due within 30 to 60 days of closing. Keep making payments on your old mortgage until your loan servicer confirms the payoff is complete.

How long does refinancing take?

The typical refinance takes 30 to 45 days from application to closing, though it can range from as little as two weeks to more than 60 days depending on your lender, the complexity of your financial situation, and current market conditions. During periods of high demand (like when rates drop sharply), lenders may experience backlogs that extend the timeline.

Here is a general timeline for each stage:

• Application and documentation (1 to 3 days): Submitting your application and gathering required documents.
• Appraisal (1 to 2 weeks): Scheduling, conducting, and receiving the appraisal report.
• Underwriting (1 to 3 weeks): The lender reviews all documentation and makes a final decision. They may request additional documents during this phase.
• Closing (1 day plus 3-day rescission): Signing documents and the mandatory waiting period.

To help speed things up, respond to lender requests promptly, have all your documents organized before applying, and avoid making major financial changes (like switching jobs or taking on new debt) during the process.

Common refinancing mistakes to avoid

Refinancing can save you significant money, but these common mistakes can erode your savings or leave you worse off:

1. Focusing only on the interest rate

A lower rate does not automatically mean a better deal. If the closing costs are high, the loan term is longer, or the lender is charging points, you may end up paying more overall. Always look at the total cost of the refinance, including fees, and calculate your break-even point.

2. Ignoring the break-even point

The break-even point tells you how long it takes for your monthly savings to recoup the closing costs. If you plan to move or sell before reaching break-even, the refinance costs you money. This is the single most important number to calculate before committing.

3. Resetting to a 30-year term without thinking it through

If you are 10 years into a 30-year mortgage and refinance into a new 30-year loan, you are extending your total repayment period to 40 years. Even with a lower rate, you may pay more in total interest. Consider refinancing into a shorter term that matches or beats your original payoff date.

4. Not shopping around

As mentioned earlier, getting multiple quotes can save thousands. Many borrowers stick with their current lender out of convenience, but other lenders may offer significantly better terms. Take the time to compare at least three to five Loan Estimates. Visit our lender comparison page for a starting point.

5. Taking on too much cash in a cash-out refinance

Cash-out refinancing can be a smart financial tool, but borrowing more than you need increases your monthly payment, your total interest, and your risk. Only take out what you have a clear plan for, and make sure the math still works for your overall financial picture.

6. Making major financial changes during the process

Changing jobs, opening new credit accounts, or making large purchases during the refinance process can affect your credit score, DTI ratio, and loan eligibility. Lenders may re-pull your credit before closing, and changes could delay or derail your refinance. Keep your financial profile stable until after closing.