How Do I Refinance My Mortgage?

To refinance your mortgage, decide what the new loan has to do, check that your equity and credit qualify, apply with several lenders, and compare their Loan Estimates. Then lock a rate and complete underwriting and the appraisal before you sign at closing.

What are the steps to refinance?

1. Set the goal and test the savings. Write down the target: a lower payment, a shorter term, a fixed rate, removing mortgage insurance, or a set amount of cash out. If the new loan lowers your monthly payment, divide estimated upfront closing costs by the monthly payment savings to estimate how many months it takes to recover those costs, and compare that with how long you expect to keep the loan. This does not measure overall savings when the term changes. Compare total interest too: a longer term can lower payments while increasing total interest, and a shorter term can save interest while raising payments. What refinancing means compares the refinance types and when each fits.
2. Check that you qualify. Estimate your loan-to-value ratio (LTV), your loan amount divided by the home's value, and pull your credit reports to fix errors before a lender sees them. What lenders require to refinance lists the credit, debt, and equity limits by loan type.
3. Gather documents. For a conventional loan, Fannie Mae requires a paystub dated no earlier than 30 days before your application that shows year-to-date earnings, and W-2s covering the most recent one or two years. Also have your current mortgage statement, homeowners insurance details, recent bank statements, and tax returns if you are self-employed or have rental income.
4. Apply with several lenders in a short window. FICO groups mortgage credit inquiries for scoring within 14 days under older models and 45 days under newer models. The inquiries can still appear separately on your credit report. Aim to shop within 14 days to fit both windows. Each lender must send you a Loan Estimate within 3 business days of receiving your application.
5. Compare the Loan Estimates. Ask for them on the same day, since the CFPB notes rates can change daily. Compare the interest rate, total origination charges in Section A (which include any points you pay to lower the rate), lender credits in Section J, and the "In 5 years" line on page 3. Subtract the principal paid from the total paid on that line to get five years of interest and fees. The costs and fees of refinancing explains each charge.
6. Lock the rate. A rate lock holds your rate until closing if you close within the lock period and your application does not change. The CFPB says locks typically run 30, 45, or 60 days, and an extension can be expensive. A locked rate can still change if the appraisal comes in different from the estimate, your credit score changes, or the lender cannot document income you listed.
7. Complete underwriting and the appraisal. The underwriter verifies your documents and may ask for more. Your lender orders the appraisal, unless the loan program waives it, and must give you a copy as soon as it is completed or 3 business days before closing, whichever comes first. If the value comes in low, your LTV rises, which can raise your rate or reduce the cash you can take out. The mortgage approval process covers underwriting conditions.
8. Review the Closing Disclosure. You must receive it at least 3 business days before closing. Check that the rate, loan amount, cash to or from you, and closing costs match your Loan Estimate, and ask the lender to explain any difference.
9. Close and wait out the cancellation period. On a primary home, you can cancel until midnight of the third business day after the last of these events: signing the loan contract, receiving the required disclosures, and receiving the cancellation notices. Count Saturdays, but not Sundays or legal public holidays. Mail or deliver written notice to the lender by the deadline; calling is not enough. If you refinance with the lender your loan agreement was originally payable to (or its successor through a merger, consolidation, or acquisition), that right applies only to new money borrowed beyond your current balance and the refinance costs. Merely buying or servicing your loan does not qualify a lender for this exception. The new loan cannot fund until any applicable cancellation period ends. Your old loan is not paid off until the new loan funds, so make any payment that comes due before then.

How long does a refinance take?

The timeline depends on how fast the lender's underwriting and the appraisal move. Ask each lender for its current average time from application to closing, and choose a lock period that covers it with a margin, since a lock that expires before closing may cost you to extend.

Should you refinance with your current servicer, a direct lender, or a broker?

You can refinance with any lender that offers your loan type. Your servicer (the company that collects your payments) has no automatic right to the new loan.

What are the disadvantages of refinancing through a mortgage broker?

A broker can save you the work of applying with several lenders, but it has limits a direct quote does not:

• A limited lender list. A broker can quote only the lenders it has agreements with, not the whole market. Federal rules bar a broker from steering you to a loan because it pays the broker more. A broker can meet that rule by showing you, for each loan type you want, the loan with the lowest interest rate, the lowest rate without risky features such as a prepayment penalty, and the lowest total points and origination fees, drawn from a significant number of the lenders it regularly works with. Ask the broker for those three options in writing.
• Its pay comes out of your loan. Either the lender pays the broker, and you pay for it through the interest rate, or you pay the broker a fee at closing. The broker cannot collect from both on the same loan. Who pays the mortgage broker shows how to compare the two.
• Its pay is fixed once terms are offered. The lender can lower its rate or fees to match a competing offer, but the broker cannot cut its own compensation on that loan to match. Negotiate a broker fee before you apply.
• One more party in the chain. The lender's underwriter, not the broker, approves the loan and sets its conditions. Requests for documents pass through the broker, so ask who your contact at the lender is if conditions stall.

Whichever route you choose, compare a broker's Loan Estimate with at least one direct lender's estimate for the same loan amount, term, and loan type.