What Is Mortgage Refinancing?
Mortgage refinancing is swapping out your current home loan for a new one that better aligns with your financial needs. The fresh loan pays off the old one, potentially lowering your interest rate, reducing monthly payments, or even helping you tap into home equity for extra cash.
To get started, you’ll need to round up documents like recent pay stubs, W-2s, and bank statements. You’ll also need key details about your current mortgage—things like your remaining balance, interest rate, and remaining loan term. With this info, you and your lender can determine if refinancing makes sense for your situation.
Refinancing isn’t free—closing costs typically run between 2% and 6% of your loan amount. These fees depend on your lender, location, and loan type. The good news? Many lenders let you roll closing costs into your new mortgage balance so you don’t have to pay upfront. Just keep in mind that this increases your total loan amount.
To get the best deal, apply with multiple lenders and compare Loan Estimates. This helps you weigh costs against potential savings and find the right refinance option.
Common Refinancing Fees
Here are typical costs you might encounter:
Lender Fees – Loan origination, underwriting, and processing fees.
Credit Report Fee – To check your creditworthiness.
Appraisal Fee – Determines your home’s market value.
Title Fees – Covers title searches and title insurance.
Attorney Fees – If your state requires legal representation.
Transfer Taxes – State-specific charges.
Escrow Fees – For property taxes and homeowners insurance.
Flood Certification – Verifies if your home is in a flood zone.
Recording Fees – Covers filing your new loan with the county.
Prepaid Interest – Covers interest from closing until your first payment.
How to Calculate Refinancing Savings
Want to see if refinancing pays off? Compare your current monthly mortgage payment to what you’d owe on a new loan. Then, use an amortization schedule to check the principal balance over time. A refinance is usually worth it if it lowers both your monthly payment and total interest paid over the life of the loan.
Is Refinancing Worth It?
Refinancing makes sense when the long-term savings outweigh the costs. Keep an eye on mortgage rates and use a refinance calculator to crunch the numbers.
