Mortgage Refinancing Finder

Even if you’ve signed a loan agreement with a 30-year term, it doesn’t mean you’re stuck with it. Comparing refinance options from different lenders could help you save over the life of your loan. But while you might be able to leverage better market rates, your home’s equity or an improved credit score to replace your mortgage with a new one — timing is everything.

What is refinancing?

Refinancing is when you replace your mortgage with a new one with better rates and terms. You can refinance your loan under your current lender or start a new loan with a competing bank or nontraditional lender.

Often the main purpose of refinancing is to save on repayments. But you can also refinance to unlock equity in your property with products like cash-out refinances. A cash-out refinance replaces your existing mortgage with a loan amount that’s higher than what you owe — you’ll get the difference in cash.

5 types of mortgage refinancing

Here are the five main types of refinancing you might want to consider:

1. Rate and term refinance. Rate and term mortgage refinancing allows you to change your mortgage rate and/or terms. For example, you can refinance to a lower interest rate, a shorter loan term or go from a variable rate to a fixed-rate loan — or a combination of all three. It also allows you to get rid of FHA mortgage insurance when your home’s equity reaches 20%. The goal here is to save money.
2. Cash-out refinance. When you have equity built up in your home, a cash-out refinance allows you to replace your current mortgage with a new mortgage for a higher amount. The difference between the old and new mortgage is the “cash-out” portion. Ideally, you want to secure a lower rate at the same time, too. Cash-out refinances are available for both conventional and government-backed loans.
3. Cash-in refinance. With this option, you replace your current mortgage with a new loan, while paying down your principal at the same time. This is often done if a home is “underwater” — that is, when the mortgage is more than the home is worth. However, the same thing can be accomplished by paying down your principal without a costly refinance. So, this option only makes sense if you can secure a lower rate or there’s a prepayment penalty on your existing mortgage that makes it cheaper to refinance.
4. Streamline refinance. Available for existing FHA, VA and USDA mortgage borrowers, this refinancing program offers reduced paperwork and lower eligibility requirements. In many cases, you don’t need to undergo a credit check, verify your income or have a specific debt-to-income ratio. However, you can’t get cash out with these options. Instead, you need to choose a conventional cash-out mortgage refinance or government-backed cash-out refinance program.
5. Reverse mortgage refinance. If you have significant equity built up, a reverse mortgage eliminates monthly repayments and you receive cash every month instead. Because this type of mortgage reduces your equity over time, it’s best for retired homeowners 62 and up looking for extra cash in retirement and who don’t plan on bequeathing the home.

While not a specific type of mortgage refinance, there’s also something called a no-closing-cost mortgage refinance. As the name suggests, you can either skip the closing costs with this option or the costs roll into your mortgage so you don’t have to pay them up front. But you may pay a higher rate or have bigger payments.

How much can I save by refinancing my mortgage?

If you lock in a lower rate than what you’re paying now, you stand to save thousands. But because of closing costs and other fees, do the math to determine if refinancing is worth it.

Suppose you signed a 30-year $350,000 mortgage with an average variable rate of 4.3% — the ongoing rate at the time — you’d pay $1,732 on your loan monthly.

Now suppose that you’ve found a new lender willing to refinance your existing mortgage at today’s average rate of 3.54%. It’ll cost you 2% closing cost. Although you would need to pay $7,000 in fees, it would drop your monthly payments to $1,571.

By refinancing, you’d save $161 a month — or around $50,000 ($57,960 – $7,000 = $50,960) over the lifetime of your 30-year loan, after deducting closing costs and fees.

How to compare lenders when refinancing

A few things to consider when comparing lenders for your refinance are:

• Cost. Though closing costs vary by lender, consider the costs for application, underwriting and other third-party fees you’re responsible for.
• Loan terms. Compare the interest rate, monthly payment and length of your loan.
• Service. Refinancing often gets you a new lender, so research how you can manage your account, get in touch with customer service and read customer reviews for multiple lenders.

How to refinance your mortgage

Learn whether refinancing can help save you money, cut down your repayment term or leverage equity in eight steps:

1. Examine your current loan. Check your existing rate against today’s averages, and ask about fees to switch.
2. Ask your current lender for a lower rate. Your lender could offer you a rate discount based on your research. If not, compare your options among competitors.
3. Compare refinancing options. Look for a loan with a stronger rate, shorter term or other loan features you’d like to take advantage of.
4. Crunch the numbers. Weigh the costs of your new loan, including any fees, against your potential new loan to learn whether it’s worth it.
5. Apply for the new loan. Submit your application and supporting documents to get the ball rolling. Verification, valuation and assessments, approval and settlement can take a month or more, depending on your financial situation.
6. Close your existing loan. Your new lender works with your old one to pay off the balance of your existing mortgage and set up your new contract.
7. Repay your new lender. But don’t forget to periodically check in on the market to see if you might benefit from another refinance.

I want to refinance my…

How much will refinancing cost me?

Refinancing a mortgage can be expensive, requiring upfront costs to both your old and new lenders. Still, after factoring in the fees, you may still benefit from the lower rate or longer term your new mortgage offers.

Ask both lenders about fees that can include:

• Early termination for your old loan.
• Application fees for your new loan.
• Appraisal costs.
• Closing costs.
• Ongoing fees for your new loan.

No-closing-cost refinance: Does it make sense?

Why should I refinance?

Switching can save you money. You also stand to gain more by refinancing your mortgage:

• Pay lower interest. Generally, the lower your rate, the lower your repayments. If you haven’t looked at your existing mortgage rate in a few years, you might be surprised to learn that the current rate you’re paying is higher than average.
• Unlock equity. If you’ve carried your mortgage for a while, you may have built enough equity in your home to refinance. You could lower your mortgage repayments while borrowing against your equity with a cash-out refinance.
• Pay down other debts. With some lenders, you can refinance your existing mortgage for more than you owe, borrowing the difference between the two loans as a lump sum. Refinancing to pay down higher-interest debts may save you money in the long run.
• Take advantage of special offers. Many lenders offer cash incentives or sign-up bonuses to entice you to refinance — especially during the spring or “mortgage season.” Before switching lenders, research its rates and terms to make sure cashback offers are worth it.

When shouldn’t I refinance?

You may be better off sticking with your current mortgage if:

• You plan to sell your property soon. Make sure you keep the loan long enough to make the closing costs worth it.
• Your mortgage is small. Any savings that come with refinancing might not be worth the interest you’ll pay.
• You still owe more than 80% of your home’s value. You may end up paying private mortgage insurance — or PMI — potentially wiping out your monthly savings.
• You’ve had your current mortgage for a long time. If you’ve had your mortgage for a while, you’ve likely paid more towards the interest than the principal. If you refinance, you’ll have to pay towards interest again — even if it’s at a lower rate.
• You want to access your home equity. Although a cash-out refinance loan lets you borrow money against your home equity, it comes with some risk. If you fail to keep up with your monthly loan payments, you’ll risk losing your home and all the equity that you’ve built.

Do I face tax issues with refinancing?

Generally, your ability to deduct taxes won’t change with a refinanced loan. If you’re worried about taxes, speak to your accountant or a tax professional before refinancing.

Taxes become more complicated with specific types of refinancing, like a cash-out refinance. Refinancing can also reduce your total tax deductions, depending on how much it saves you.

Bottom line

No matter how happy you are with your mortgage, you could benefit from lower rates or better terms. Changing market rates, built-up equity and improved credit are all opportunities to refinance for a lower rate or better terms. Once the savings start rolling in, start your search for your next mortgage.

Common questions about refinancing

How do I refinance my mortgage if I have bad credit?
That depends on the lender and your score. Some lenders will refinance borrowers with bad credit, though you might pay higher interest rates and fees. Know your overall creditworthiness before applying to refinance with a lender.

When is it worth refinancing a small loan amount?
If you’re refinancing, say, a $75,000 mortgage, the monthly savings may not be worth the increased interest you’ll pay over time.

Can I refinance a timeshare?
You can refinance a timeshare through specialized lenders, using a HELOC, with a credit card, borrowing from your 401k or using a personal loan. And if you’re refinancing a condo, additional paperwork may be required by your condo owner’s association (COA).

Is it better to refinance to a fixed or adjustable rate?
It depends on your financial goals. A fixed interest rate can keep your repayments low if you think interest rates will rise significantly. An adjustable-rate mortgage moves with the market, which means it could be helpful if you think interest rates will drop.

What will I need to refinance my loan?
In most cases your potential bank will want an up-to-date idea of your property’s value, including an appraisal. With savvy negotiating, you may be able to get your new lender to agree to waive any fees associated with your appraisal. Read more in our guide on how to prepare for a refinance home appraisal.

How do I refinance without equity?
That can be tough. If you haven’t gained equity with your existing mortgage, it may be difficult to find a new loan because of the high loan-to-value ratio. Talk with a mortgage expert about your options, or wait until you’ve gained enough equity to refinance.

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