Everything You Need to Know About Refinancing Your Home Loan

Refinancing is when a homeowner obtains a new home loan to replace their current loan. Learn more about how refinancing works and its benefits.

Everything You Need to Know About Refinancing Your Home Loan

Refinancing is when a homeowner obtains a new home loan to replace their current loan. The new loan should help them save money or meet other financial requirements. Refinancing is a great way to lower your monthly payments, save money on interest during the life of your loan, pay off your mortgage sooner, and take advantage of your home equity if you need cash for any purpose. When you refinance your mortgage, you replace your current mortgage with a new loan that has different terms, such as a lower interest rate.

A home refinance replaces your current home loan with a new one. Often, people refinance to lower the interest rate, cut monthly payments, or take advantage of the net value of their home. Others refinance a home to repay the loan faster, get rid of FHA mortgage insurance, or switch from an adjustable rate loan to a fixed-rate loan. Refinancing replaces an existing loan with a new loan that pays off the previous loan's debt.

The new loan should have better rates or terms that improve your financial situation. When refinancing your home loan, you must go through the same process as when you applied for your original mortgage. This includes getting a credit report and providing proof of income and assets. Plus, since there's no rush to close a refinance, unlike buying a home, you can spend more time comparing prices and finding the lowest interest rate.

After entering the data, the tool will calculate your monthly savings, new payments, and lifetime savings, taking into account the estimated costs of refinancing your home. And homeowners who use the program to refinance are limited to 30-year fixed-rate mortgages; ARMs are not allowed. If your current mortgage is an adjustable rate mortgage (ARM) and it no longer makes sense for your financial or personal goals, refinancing your loan can turn it into a more secure and stable mortgage, such as a 30-year fixed-rate mortgage. With a cash refinance, you make a one-time payment to lower the loan-to-value ratio (LTV), which reduces your total debt burden, potentially reduces your monthly payment, and could also help you qualify for a lower interest rate.

Homeowners can access a Streamline Refinance loan if their current mortgage is federally backed, including FHA loans, VA loans, and USDA loans. Most refinance loan programs also require borrowers to leave at least 15 to 20% of their home equity untapped. While it's not the best time to refinance due to rising interest rates, you could consider refinancing if you want to take advantage of your home's equity. Maybe you finally have enough mortgage capital to refinance your FHA loan to a conventional loan and stop paying private mortgage insurance.

With simplified refinancing, mortgage lenders are giving up large parts of their “typical refinance mortgage approval process”.

Rosanne Axtell
Rosanne Axtell

An animal lover. Infuriatingly humble pop culture aficionado. Incurable social media advocate. Unapologetic web expert.

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