When interest rates dropped last year, I started getting calls and emails about refinancing. I initially ignored them, thinking it would be too complicated or not worth the hassle. Then I did the math and realized I could save over $200 every month – that’s $2,400 per year going back into my pocket.
Refinancing my mortgage turned out to be one of the smartest financial moves I’ve made, helping me secure a lower interest rate while giving me peace of mind about making the best decision for my family’s future.
Whether you want to lower your monthly payments, shorten your loan term, or tap into your home equity, you can do this as well.
You can refinance your mortgage whenever it makes financial sense, and I’ll show you how to do it below.
With this, you’ll get better loan terms and potentially save thousands over the life of your loan.
How to refinance mortgage
You can easily refinance your mortgage through banks, credit unions, online lenders, or mortgage brokers.
Alternatively, if you prefer working with an expert, a mortgage broker can help you compare multiple lenders and find the best refinance rates on your behalf.
The first time I refinanced my mortgage, I worked with an online lender, and the entire process took about 45 days from application to closing.
Method 1: How to refinance mortgage through traditional banks
The first time I ever considered refinancing, I started by checking with traditional banks, and let me tell you, it was a thorough and professional experience.
Here’s how you can refinance through a bank:
Step 1: Determine why you want to refinance
Before starting the process, be clear about your refinancing goals.
Common reasons include:
Lowering your interest rate Reducing monthly payments Switching from an adjustable-rate to a fixed-rate mortgage Shortening your loan term (from 30 to 15 years) Tapping into home equity (cash-out refinance) Removing private mortgage insurance (PMI)
My primary goal was lowering my interest rate from 4.5% to 3.25%, which would save me over $200 per month.
Understanding your goal helps you make better decisions throughout the refinancing process.
Step 2: Check your credit score and report
Your credit score significantly impacts the interest rate you’ll qualify for.
Before applying, check your credit score and review your credit report for errors.
Generally, you’ll need:
A credit score of 620+ for conventional refinancing 700+ for the best rates 740+ for excellent rates
If you’re like me and find errors on your report, dispute them before applying for refinancing.
I spent two months improving my credit score from 695 to 730, which helped me qualify for a much better rate.
Step 3: Calculate your home equity
Most lenders require you to have at least 20% equity in your home to refinance without PMI.
To calculate your equity: Current home value – Outstanding mortgage balance = Home equity
For example, if your home is worth $400,000 and you owe $280,000, you have $120,000 in equity (30%).
I had my home professionally appraised to get an accurate value before applying.
Step 4: Research and compare banks
Contact multiple banks to compare refinancing offers, including:
Your current mortgage lender National banks (Chase, Bank of America, Wells Fargo) Regional and community banks Credit unions
Request rate quotes from at least 3-5 lenders.
I contacted seven different banks and the rates varied by up to 0.5%, which would have meant thousands of dollars in difference over the life of the loan.
Step 5: Get pre-qualified
Pre-qualification gives you an estimate of the rates and terms you might qualify for.
You’ll need to provide:
Your income information Current mortgage details Property information Credit score range
This step doesn’t require a hard credit inquiry yet, so it won’t affect your credit score.
Step 6: Gather required documentation
Once you choose a lender, you’ll need to submit documentation including:
Recent pay stubs (last 2 months) W-2 forms (last 2 years) Tax returns (last 2 years) Bank statements (last 2-3 months) Current mortgage statement Homeowners insurance policy Property tax statements
If you’re self-employed like some of my friends, you’ll need additional documentation like business tax returns and profit/loss statements.
I created a dedicated folder for all these documents, which made the process much smoother.
Step 7: Submit your formal application
Complete the formal refinance application with your chosen lender.
The lender will:
Run a hard credit inquiry Review all your documentation Order a home appraisal Verify your employment and income
The application fee typically ranges from $300 to $500, though some lenders waive this.
Step 8: Complete the home appraisal
The lender will order a professional appraisal of your home to determine its current market value.
This usually costs $300-$600 and ensures you have sufficient equity.
My appraisal took about a week to schedule and another week to receive the results.
The appraiser spent about 30 minutes inspecting my home and took photos and measurements.
Step 9: Review the Loan Estimate
Within three business days of your application, the lender must provide a Loan Estimate showing:
Loan terms and interest rate Estimated monthly payment Closing costs breakdown Total costs over the loan life
Review this carefully and compare it to other offers.
I compared three Loan Estimates side by side and noticed significant differences in origination fees and closing costs.
Step 10: Lock your interest rate
Once you’re satisfied with the terms, lock your interest rate.
Rate locks typically last 30-60 days and protect you from rate increases during processing.
However, if rates drop significantly, you might miss out unless you have a “float-down” option.
I locked my rate at 3.25% with a 45-day lock period.
Step 11: Complete underwriting
The underwriter reviews your entire application to ensure you meet all lending requirements.
They may request additional documentation or clarification.
This process typically takes 2-3 weeks.
Be responsive to any requests – delays in providing documents can extend your closing timeline.
Step 12: Prepare for closing
A few days before closing, you’ll receive a Closing Disclosure showing final loan terms and costs.
Review it carefully and compare it to your Loan Estimate.
You’ll need to bring:
Valid government-issued ID Proof of homeowners insurance Certified check or arrange wire transfer for closing costs
My closing costs totaled about $4,200, which I had saved in advance.
Step 13: Sign closing documents and finalize
At closing, you’ll sign all the refinance paperwork, including:
New promissory note New deed of trust or mortgage Closing Disclosure Truth in Lending statement
The closing typically takes 1-2 hours.
After signing, you have a 3-day right of rescission period before the refinance is finalized.
And that’s it! Refinancing through a traditional bank is thorough and well-structured.
Method 2: How to refinance mortgage using online lenders
Even though I initially considered traditional banks, I ended up refinancing through an online lender, and if you’re like me, this is a fantastic alternative.
If you’re like me and prefer convenience and often better rates, online lenders are a fantastic alternative.
To refinance through an online lender, follow the steps below.
Step 1: Research reputable online mortgage lenders
Popular online lenders include:
Rocket Mortgage (Quicken Loans) Better.com LoanDepot Guaranteed Rate SoFi Ally Home LendingTree
These lenders often offer competitive rates and streamlined processes.
I’ve found that online lenders typically have lower overhead costs, which translates to better rates and lower fees.
Step 2: Use online rate comparison tools
Most online lenders offer instant rate quotes without affecting your credit score.
You can compare:
Interest rates APR (Annual Percentage Rate) Loan terms Estimated monthly payments Closing costs
I spent one evening comparing rates from five different online lenders and found rate differences of up to 0.375%.
Step 3: Complete the online application
Online applications are typically more streamlined than traditional bank applications.
You can complete them in 15-30 minutes from your computer or smartphone.
The process is guided step-by-step, and many platforms save your progress so you can return later.
I completed my application on a Sunday evening from my couch – something impossible with traditional banks.
Step 4: Upload documents digitally
Instead of mailing or faxing documents, you simply upload them through the lender’s secure portal.
You can photograph documents with your phone or upload PDFs.
The platform usually tells you exactly which documents are needed and tracks what you’ve submitted.
This digital process saved me countless trips to the bank and made document submission incredibly easy.
Step 5: Track your application status online
One feature I absolutely love about online lenders is real-time application tracking.
You can log in anytime to see:
Current application status Pending document requests Appraisal status Underwriting progress Estimated closing date
This transparency eliminated the anxiety of wondering what was happening with my application.
Step 6: Communicate via phone, email, or chat
Online lenders offer multiple communication channels:
Phone support during extended hours Email support Live chat Text message updates
I primarily used email and chat, which worked better with my work schedule than traditional bank hours.
The response times were typically faster than with traditional banks.
Step 7: Complete a digital or in-person appraisal
Some online lenders offer digital appraisals using automated valuation models (AVMs) for faster processing.
Others arrange traditional in-person appraisals similar to banks.
My lender used a hybrid approach – an exterior-only appraisal that took just 15 minutes.
Step 8: Close electronically or in person
Many online lenders offer remote online notarization (RON), allowing you to close entirely online via video conference.
Alternatively, they can arrange in-person closing at a local title company.
I chose the electronic closing option and completed everything from my home office in about 45 minutes.
And that’s how easy it is to refinance through online lenders!
The online process has been incredibly convenient for me, and I hope it makes your experience just as seamless.
Method 3: How to refinance mortgage through a mortgage broker
If you want expert guidance and access to multiple lenders simultaneously, working with a mortgage broker is incredibly useful.
When I helped my parents refinance their home, we used a mortgage broker who found them a rate none of us had found independently.
Here’s how to work with a broker:
Step 1: Find a reputable mortgage broker
Ask for recommendations from:
Friends and family who recently refinanced Your real estate agent Online reviews and ratings Local broker associations
Interview 2-3 brokers before choosing one.
Make sure they’re licensed in your state and ask about their fee structure upfront.
Step 2: Initial consultation
Meet with the broker to discuss:
Your refinancing goals Current mortgage details Financial situation Timeline
The broker will explain how they work and what services they provide.
My parents’ broker spent over an hour understanding their goals and explaining different refinancing options.
Step 3: Broker shops multiple lenders
This is where brokers provide tremendous value.
They have relationships with dozens of lenders and can submit your application to multiple ones simultaneously.
They compare:
Interest rates Loan terms Closing costs Lender fees Processing times
My parents’ broker compared offers from 12 different lenders, something that would have taken weeks to do independently.
Step 4: Review broker’s recommendations
The broker presents you with the best options they’ve found.
They explain the pros and cons of each offer and help you understand which one best meets your goals.
Unlike shopping independently, you get expert analysis of each offer.
Step 5: Broker manages the process
Once you choose a lender, the broker coordinates the entire refinancing process:
Submits all documentation Communicates between you and the lender Troubleshoots any issues Ensures the process stays on track
This hands-on management was invaluable for my parents, who found the process overwhelming.
Step 6: Close on your new mortgage
The broker attends closing with you or ensures everything is in order.
They verify all documents are correct and answer any last-minute questions.
After closing, they remain available for any post-closing issues.
If you’re currently considering refinancing your mortgage or want to explore your options, use any of the above methods (through traditional banks, online lenders, or mortgage brokers) to find the best refinance deal.
If you encounter any issues during the refinancing process, contact your lender or broker for assistance.
When is the right time to refinance my mortgage?
The right time to refinance depends on several factors:
Interest rates have dropped at least 0.5-1% below your current rate You plan to stay in your home long enough to recoup closing costs (usually 2-3 years minimum) Your credit score has improved significantly You want to switch loan types or terms You need to access home equity
I refinanced when rates dropped from 4.5% to 3.25% and knew I’d stay in my home at least five more years.
Calculate your break-even point: divide your closing costs by monthly savings to see how long until you break even.
How much does it cost to refinance a mortgage?
Refinancing costs typically range from 2-6% of your loan amount.
For a $300,000 mortgage, expect to pay $6,000-$18,000 in closing costs, including:
Appraisal fee: $300-$600 Application fee: $0-$500 Origination fee: 0.5-1% of loan amount Title search and insurance: $1,000-$3,000 Attorney fees: $500-$1,500 Recording fees: $100-$250 Credit report fee: $25-$50
Some lenders offer “no-closing-cost” refinances where they cover costs in exchange for a slightly higher interest rate.
I paid $4,200 in closing costs on my $290,000 refinance, which I recouped in 18 months through lower monthly payments.
Will refinancing hurt my credit score?
Refinancing causes a temporary, small decrease in your credit score, typically 5-10 points.
This happens because:
Hard credit inquiry (lasts 2 years on your report) New account opening (affects average account age) Closing old mortgage account
However, your score usually recovers within a few months, especially if you make on-time payments.
My score dropped 8 points after refinancing but recovered fully within four months.
The long-term benefits of refinancing far outweigh this temporary small impact.
How long does the mortgage refinancing process take?
The typical refinancing timeline is 30-45 days from application to closing.
Week 1-2: Application, documentation, and credit check Week 2-3: Home appraisal Week 3-4: Underwriting review Week 4-6: Final approval and closing
Online lenders often complete the process faster, sometimes in 2-3 weeks.
My refinance took 43 days with an online lender, which aligned perfectly with my rate lock period.
What is the difference between rate-and-term refinance and cash-out refinance?
Rate-and-term refinance: You simply change your interest rate or loan term without taking cash out. Your new loan amount equals your current balance plus closing costs.
Cash-out refinance: You borrow more than you currently owe and receive the difference in cash. For example, if you owe $200,000 and refinance for $250,000, you get $50,000 cash (minus closing costs).
I did a rate-and-term refinance to lower my interest rate, but my neighbor did a cash-out refinance to fund home renovations.
Cash-out refinances typically have slightly higher interest rates and stricter requirements.
Can I refinance with bad credit?
Yes, but your options are more limited, and rates will be higher.
Minimum credit scores by loan type:
Conventional: 620 minimum (best rates at 740+), FHA: 580 minimum (500-579 with 10% down), VA: No official minimum (typically 580-620 in practice), USDA: 640 minimum
If your credit is below 620, consider:
Working to improve your score before refinancing FHA or VA refinance programs (if eligible), working with a mortgage broker who can find specialized lenders
I improved my credit from 695 to 730 before refinancing, which saved me 0.25% on my interest rate – about $45 per month.
Should I refinance to a 15-year or 30-year mortgage?
This depends on your financial goals and budget.
15-year mortgage:
- Higher monthly payments
- Significantly lower total interest paid
- Build equity faster
- Better for those nearing retirement
30-year mortgage:
- Lower monthly payments
- More financial flexibility
- Higher total interest paid
- Better if you plan to invest the difference
I refinanced from a 30-year to another 30-year to keep my payments low, but I pay extra principal each month to pay it off faster while maintaining flexibility.
What documents do I need to refinance my mortgage?
Essential documents for refinancing include:
Income verification:
- Recent pay stubs (2 months)
- W-2 forms (2 years)
- Tax returns (2 years)
Asset verification:
- Bank statements (2-3 months)
- Investment account statements
- Retirement account statements
Property information:
- Current mortgage statement
- Homeowners insurance
- Property tax statements
- HOA documents (if applicable)
Identification:
- Government-issued photo ID
- Social Security card
Self-employed borrowers need additional business documentation.
I organized all these documents in a digital folder before applying, which made the process much smoother.
Can I refinance if I have an FHA loan?
Yes, you have two options:
FHA Streamline Refinance: Faster, less documentation, no appraisal required in many cases. Must be an FHA-to-FHA refinance.
Conventional refinance: Refinance your FHA loan to a conventional loan to eliminate mortgage insurance premium (MIP) if you have 20%+ equity.
I helped a friend refinance from FHA to conventional once they reached 20% equity, which eliminated their $180/month PMI payment.
Refinance your mortgage for better terms
Mortgage refinancing has made it possible for millions of homeowners to save money and achieve their financial goals, you can take advantage of it when conditions are right.
Whether you’re looking to lower your monthly payment, pay off your home faster, or access your home equity, refinancing provides flexible options to meet your needs.
I’ve refinanced twice over the years, and each time it’s resulted in significant savings and better financial positioning for my family.
