Refinancing your mortgage can be a good move when you want to lower your housing payment. It could help you reduce your interest rate, extend your loan term, or get rid of mortgage insurance. In other words, refinancing could free up space in your monthly budget for other priorities.
Refinancing is also the way to go when you want to switch home loan types — from FHA to conventional, for example, or conventional to VA, which is the route for a cash-out refinance.
The refinancing process is usually faster and simpler than getting a mortgage to buy a home. What’s more, you don’t have to stick with your existing mortgage lender. Getting quotes from several lenders can help you get a better rate and lower closing costs.
- What is a mortgage refinance?
- Best mortgage refinance lenders
- When is refinancing a bad idea?
- Tips for comparing lenders
- Mortgage refinance FAQs
What is a mortgage refinance?
A mortgage refinance is a new home loan that replaces your existing home loan. It usually has a different interest rate and it might have a different term (the number of years you can take to pay it off).
When you refinance, the money from your new loan pays off your existing home loan. You no longer owe anything on your original loan, and you start making payments on your new loan instead.
Best mortgage refinance lenders
Credible’s mortgage refinance partners are among the best lenders out there. See which option fits your situation best.
New American Funding
Best for: Customer satisfaction
This online lender is one of the country’s largest mortgage originators. It also has a long track record of high customer satisfaction, most recently topping J.D. Power’s 2022 Mortgage Servicer Satisfaction Survey.
New American offers all the major home loan types, but it’s also a good choice if you’re seeking a more personalized approach to refinancing.
In addition to offering detailed profiles of its loan officers — making it easy to choose one with good reviews and based in a location convenient to you — New American also offers I CAN Mortgages. These are mortgages with customizable terms, which gives you the flexibility to choose a repayment period ideal for your situation.
Pros
- Refinance loans with custom terms
- Detailed loan officer pages
- Emphasis on helping underserved communities
Cons
- Not available in every U.S. state
loanDepot
Best for: Refinancing with a VA loan
loanDepot, another online lender, is among the country’s 10 largest. It offers all the most popular mortgage types and scores well for customer satisfaction in J.D. Power’s rankings.
Qualifying U.S. military service members may be interested to know that the company specializes in VA loans. If you’re an eligible borrower, you could get a competitive rate on a VA interest rate reduction refinance loan (IRRRL) for up to 100% of your home’s value.
If you’re on the fence about whether to refinance now or wait, loanDepot’s lifetime guarantee might convince you to go for it. You’ll never have to pay lender or appraisal fees on any future loanDepot refinance for the same home.
Pros
- Has a reputation for closing loans quickly
- Offers both fixed-rate and adjustable-rate mortgages
- Is well-versed in the nuances of VA loans
Cons
- Doesn’t disclose rates and fees on its website
- You can’t work with a loan officer in person
NASB
Best for: A variety of loan options
North American Savings Bank, commonly known as NASB, is a well-known mortgage servicer with high marks in customer satisfaction. The company has a robust website with plenty of information on its refinance loans and the refinancing process in general. Unlike some mortgage lenders, NASB displays rates online, making it easier for you to compare refinance options.
Along with the major mortgage types — conventional, FHA, and VA — NASB offers refinance loans with more flexible qualification standards. For instance, you may be able to qualify for a cash-out refinance with a loan-to-value ratio of 95%.
Pros
- Displays refinance rates online
- Offers adjustable-rate mortgages
- Generous cash-out refinancing requirements
- High customer satisfaction
Cons
- Doesn’t offer home equity loans or home equity lines of credit (HELOCs)
When is refinancing a bad idea?
Refinancing doesn’t come without some financial risks. If any of these circumstances describe you, refinancing now might be a bad idea:
- It leads to closing costs that are too high. Refinancing isn’t free. Typical costs include an origination fee or underwriting fee, appraisal, title search, lender’s title insurance, and escrow services. These can total thousands of dollars. They may be too high to make the monthly savings worth it if your breakeven period is too long.
- You might move soon. You’ll need to live in your home for a certain number of months after refinancing to break even. Only after that will you come out ahead (unless you can find a no-cost refi). If you think you might move soon, the closing costs to refinance may not be worth the monthly savings. Unexpected events like a layoff, job transfer, divorce, or death in the family can prompt people to move even when they weren’t planning to.
- It results in a higher interest rate. Unless your credit score has shot up since you took out your existing mortgage, you may not get a lower rate when you refinance. Mortgage rates more than doubled from the fall of 2021 to the fall of 2022 after hovering around record lows for years. Any offer you get now might have a higher rate.
Tips for comparing the best mortgage lenders for refinancing
The best way to choose a mortgage lender when you want to refinance is to apply with multiple lenders.
Once you apply, each lender will give you a formal loan estimate showing the interest rate, closing costs, and loan terms you qualify for. Comparing your loan estimates from each lender will help you see which offer is the best deal for you.
Ideally you’d submit all your applications on the same day at around the same time since mortgage rates change constantly. If you spread out your applications, your loan cost comparisons between lenders won’t be valid.
In other words, don’t compare one lender’s best rate on Dec. 7 to another lender’s best rate a few days later. The first lender’s Dec. 7 quote may not be available a few days later — unless you lock your rate when you apply.
Applying may impact your credit score. However, applying with several mortgage lenders over a 45-day span should have the same effect as applying with a single lender, according to the Consumer Financial Protection Bureau. Credit scoring formulas aren’t supposed to penalize you for shopping around for your home loan.
Mortgage refinance FAQs
What do you need to refinance your mortgage?
To refinance your mortgage, you usually need a 12-month history of making your mortgage payments on time, a credit score of at least 620, and a steady income to afford the new loan. If you’re applying for an FHA or VA streamline refinance, the requirements may be looser.
When should you refinance your mortgage?
You should refinance your mortgage when it will improve your financial situation. For example, if your credit score has gone up, you might want to refinance from an FHA loan to a conventional loan. This change would get rid of your monthly FHA mortgage insurance premiums.
What types of mortgage refinancing are available?
The two main categories of refinancing are rate and term and cash out. A rate-and-term refinance keeps your loan balance the same. A cash-out refinance increases your loan balance while letting you borrow against your home equity. Both give you a new interest rate and final payoff date.
How can I raise my credit score?
Making all your loan payments on time and paying down your debt can boost your credit substantially. Also, some people’s credit reports have errors that are hurting their scores. So, it’s a good idea to make sure your report is accurate. If not, contact the creditor about getting the false information removed. If that doesn’t work, try submitting a dispute with the credit bureau.