Refinance Your Mortgage: Rate, Term, and Loan Structure Options

What Is a Mortgage Refinance?

Refinancing replaces your current mortgage with a new one. The new loan pays off your existing mortgage, and you begin repaying the new loan under its terms, which may include a different interest rate, loan term, or loan type.

Whether a refinance makes financial sense depends on your current rate versus available rates, how long you plan to stay in the home, and the closing costs involved.

Types of Refinances

Rate-and-Term Refinance: Changes your interest rate, loan term, or both. Common goals include lowering a monthly payment by getting a lower rate, shortening the loan term from 30 to 15 years, or converting from an adjustable-rate mortgage to a fixed rate.

Streamline Refinances: Available for existing FHA, VA, and USDA loan holders, streamline refinances are simplified processes that typically require less documentation and may not require a full appraisal. They’re designed to help current government-backed loan holders refinance into a lower rate with reduced paperwork.

Cash-Out Refinance: Refinances the home for more than is currently owed and takes the difference in cash. Covered separately on our Cash-Out Refinance page.

When Refinancing May Make Sense

A refinance may be worth exploring if:

• Your current interest rate is meaningfully higher than what may be available today
• You want to switch from an adjustable-rate to a fixed-rate mortgage
• You want to shorten your loan term and can afford the higher payment
• Your credit has improved significantly since you got your original loan
• You want to remove FHA mortgage insurance by refinancing into a conventional loan with 20%+ equity

The Break-Even Calculation

Refinancing has closing costs, typically 2-5% of the loan amount. To evaluate whether refinancing makes sense, calculate your break-even point: divide the total closing costs by the monthly savings to determine how many months it takes to recover the cost.

Example: If closing costs are $5,000 and you save $150/month, your break-even is about 33 months. If you plan to stay in the home longer than that, the refinance may save money over time.

Qualification Requirements

Refinances are subject to the same qualification standards as purchase loans:

• Credit score requirements based on the loan type (FHA, VA, conventional)
• Income documentation to verify ability to repay
• Home appraisal (in most cases) to determine current value and LTV
• Debt-to-income ratio within program guidelines

Streamline refinances for FHA, VA, and USDA may have reduced documentation requirements.