Refinancing your mortgage
What is a mortgage refinance?
A mortgage refinance replaces your current home loan with a new one that has its own rate, term, payment and closing costs. The new loan pays off the old one at closing.
People refinance to lower the rate, shorten the term, drop mortgage insurance, leave an adjustable rate, or borrow against equity. Each goal costs roughly 2% to 6% of the loan in closing costs, so the real question is how long until the savings repay the costs, and will you keep the loan that long?
| Goal | The trade-off |
|---|---|
| Lower monthly payment | A longer term can raise lifetime interest even at a lower rate |
| Pay the house off sooner | Higher payment, less monthly flexibility |
| Take cash out | Bigger balance, usually priced higher than a no-cash refinance |
| Drop PMI or FHA mortgage insurance | Worth it only if the rate and costs don't eat the savings |
| Escape an adjustable rate | The fixed rate may be higher than your current teaser rate |
When is refinancing worth it?
Refinance when the savings over the time you'll actually keep the loan beat the cost of refinancing.
Break-even (months) = total refinance costs ÷ monthly savings
The old "refinance when you can cut your rate by 1%" rule ignores loan size, which matters more:
| Scenario | Monthly savings | Costs | Break-even |
|---|---|---|---|
| $120,000 loan, 7.00% to 6.00% | $79 | $4,000 | 51 months |
| $600,000 loan, 7.00% to 6.50% | $199 | $6,000 | 31 months |
Skip it if you'll move before break-even, if you'd restart a 30-year clock late in your loan just for a lower payment, or if you only need some cash and already have a low rate (a HELOC is usually cheaper). Check your numbers in the break-even calculator.
Types of mortgage refinance
| Type | Max loan-to-value | Key rules |
|---|---|---|
| Rate-and-term (conventional) | Generally up to 95% | Cash back capped at the greater of 1% of the loan or $2,000 |
| Cash-out (conventional) | 80% (primary, one unit) | Current loan at least 12 months old |
| FHA streamline | No appraisal usually | 210 days and 6 payments; rate plus MIP must drop 0.5 point; $500 cash back max |
| FHA cash-out | 80% | 12 months owned and occupied with on-time payments |
| VA IRRRL | No appraisal usually | 0.5% funding fee; rate drops 0.5 point; costs recouped within 36 months |
| VA cash-out | Up to 100% (lenders often 90%) | Funding fee 2.15% first use, 3.3% after |
| USDA Streamlined-Assist | No new appraisal | 12 months on time; payment must drop at least $50 |
No-closing-cost refinances aren't free: the lender rolls costs into the balance or charges a higher rate. On a $320,000 loan, taking 6.625% with no costs instead of 6.25% plus $6,500 in costs is cheaper for about the first five and a half years, then becomes the more expensive choice. It suits people who expect to move or refinance again soon.
Refinance requirements in 2026
| Conventional | FHA | VA | |
|---|---|---|---|
| Credit score | No hard Fannie Mae minimum since Nov. 2025; many lenders still want ~620 | Lenders commonly want 580–620 | No VA minimum; lenders commonly 580–620 |
| Debt-to-income | Up to 45% (50% with automated approval) | About 43%, higher with automated approval | 41% guideline plus residual income |
| Equity for cash-out | 20% left after cash out | 20% left after cash out | Up to 100% LTV; lenders often want 10% |
Better scores and lower loan-to-value get better pricing: on $300,000, the gap between 6.50% and 7.25% is about $150 a month. Most refinances need an appraisal (often $400–$900), though streamlines and some automated approvals skip it.
Refinance closing costs
Expect about 2% to 6% of the loan amount. A lean example on a $300,000 refinance:
| Fee | Example | Negotiable? |
|---|---|---|
| Origination fee (0.75%) | $2,250 | Yes, compare lenders |
| Processing and underwriting | $900 | Yes |
| Title search and lender's title policy | $1,200 | Often; ask for a reissue rate |
| Appraisal | $600 | Sometimes waived |
| Settlement, credit report, flood, recording | $815 | Mostly no |
| Total | $5,765 (1.9%) |
Points and state mortgage taxes push many refinances to 3%–5%. Prepaid interest and the new escrow deposit also appear at closing, but your old escrow balance is refunded, so leave both out of break-even. To pay less, get three Loan Estimates on the same day, ask your current servicer to waive fees, and ask the title company for a refinance rate. Price yours in the closing cost calculator.
How to refinance, step by step
Most refinances take 30 to 45 days from application to closing.
Run your numbers
Use your current balance, rate and payoff date in the refinance calculator.
Apply with three or more lenders within two weeks
Mortgage inquiries in a short window count as one. Each lender must send a Loan Estimate within three business days.
Compare offers and lock your rate
Compare rate, points, fees and APR on the same loan amount and term. Locks usually run 30 to 60 days.
Appraisal and underwriting
Send documents quickly and don't open new credit.
Close and wait out rescission
Your Closing Disclosure arrives three business days before closing. On a primary home you then have three business days to cancel before the loan funds.
How to get the lowest refinance rate
- Shop at least three lenders on the same day. Quotes for the same borrower vary.
- Raise your score first. Paying cards below 10% of their limits is the fastest lever.
- Lower your loan-to-value past 80%, 75% or 60% for better pricing.
- Skip cash-out if you can, and consider a shorter term; both price lower.
- Buy points only if you'll stay past their break-even.
| Option | Upfront | Monthly P&I | Break-even |
|---|---|---|---|
| 0 points at 6.75% | $0 | $2,594 | — |
| 1 point at 6.50% | $4,000 | $2,528 | 61 months |
| 2 points at 6.25% | $8,000 | $2,463 | 61 months |
Here points pay off only after about five years. Compare your offers in the points calculator.
15-year vs 30-year refinance
| Term | Rate | Monthly P&I | Total interest |
|---|---|---|---|
| 30-year | 6.75% | $2,270 | $467,234 |
| 30-year + $300/month extra | 6.75% | $2,570 | $315,535 |
| 15-year | 6.00% | $2,953 | $181,630 |
The 15-year costs $683 more a month but saves about $285,600 in interest. A 30-year with extra payments keeps a lower required payment as a safety net. Compare in the 15 vs 30-year calculator.
Refinancing to remove PMI, FHA MIP or an ARM
Conventional PMI can be cancelled on request at 80% of the original value and ends automatically at 78%. Many servicers also remove it after a new appraisal shows 75% LTV (loans 2–5 years old) or 80% (older), so you often don't need to refinance. Check your dates in the PMI removal calculator.
FHA mortgage insurance (0.55% a year for most borrowers) lasts the life of the loan if you put down less than 10%. Refinancing to a conventional loan at 80% LTV or less removes it.
Adjustable rates: refinance before the first reset. A $400,000 five-year ARM at 5.5% ($2,271) that resets to 7.5% jumps to about $2,733; a fixed refinance at 6.5% would be about $2,497.
Home equity: HELOCs, home equity loans and cash-out
What is home equity, and how much can you borrow?
Home equity is your home's current value minus everything you owe against it. You can borrow against it with a HELOC, a home equity loan or a cash-out refinance.
Lenders cap your combined loan-to-value (CLTV), meaning all loans on the home divided by its value, usually at 80% to 85% and sometimes 90%.
Maximum you can borrow = (home value × max CLTV) − what you already owe
A $500,000 home with a $260,000 mortgage has $240,000 of equity; at 85% CLTV you could borrow up to $165,000. Try your numbers in the home equity calculator.
HELOC vs home equity loan vs cash-out refinance
| HELOC | Home equity loan | Cash-out refinance | |
|---|---|---|---|
| You get | A credit line you draw as needed | A lump sum | A lump sum in a new first mortgage |
| Rate | Usually variable (prime + margin) | Fixed | Fixed or adjustable |
| Current mortgage | Stays | Stays | Replaced at today's rate |
| Closing costs | Low; sometimes covered | Low to moderate | 2%–6% of the whole loan |
| Best when | Costs come in stages | You want a fixed payment | Your current rate is above today's |
Most home equity lenders want 15%–20% equity left after borrowing, a score around 680+ for the best terms, and debt-to-income near 43% or lower. HELOCs and home equity loans on your primary home carry the same three-day right to cancel as a refinance.
How a HELOC works
A HELOC typically has a 10-year draw period, often with interest-only payments, followed by a 20-year repayment period of principal and interest. The rate usually tracks the prime rate, so it moves when the Federal Reserve does.
Ask about annual fees, early-closure fees and fixed-rate conversion options. Model your payments in the HELOC payment calculator.
How a home equity loan works
A home equity loan is a fixed-rate second mortgage paid out as a lump sum over 5 to 30 years. Its rate is higher than a first mortgage, but you pay it only on the new money while your low first-mortgage rate stays in place. You also get a Loan Estimate and Closing Disclosure, as with a refinance.
Which is cheaper: cash-out refinance or home equity loan?
It depends on your current rate. A cash-out refinance reprices your whole balance; a second mortgage charges more on only the new money.
- Low current rate: keep it; use a HELOC or home equity loan.
- Current rate above today's: a cash-out refinance can lower the rate and give you cash.
- Using the money: repairs and high-rate debt payoff are reasonable uses; vacations, cars and investing are risky, because the house is the collateral.
Compare both in the cash-out vs home equity loan calculator.
Before you sign
Refinancing, home equity and taxes
General US federal rules, not tax advice (see IRS Publication 936):
- Mortgage interest is deductible if you itemize, on up to $750,000 of acquisition debt, a cap made permanent in 2025.
- Cash-out, HELOC and home equity loan interest is deductible only on money used to buy, build or substantially improve the home.
- Refinance points are usually deducted over the life of the loan, not all at once.
- Mortgage insurance premiums are deductible again from tax year 2026, subject to income limits.
Mistakes to avoid
- Comparing rates but not costs. Compare points, fees and interest over the years you'll keep the loan.
- Resetting to 30 years without noticing. A lower payment from a longer term isn't savings.
- Getting one quote. Get at least three Loan Estimates on the same day.
- Giving up a low rate for cash. A second mortgage on just the new money is usually cheaper.
- Treating a HELOC's interest-only payment as permanent. Budget for the repayment payment.
- Opening new credit mid-process or letting your rate lock expire.