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How to refinance a mortgage

Learn more about how to refinance your home and what your options are

When you refinance your home, you pay off your current mortgage and replace it with a new one. You might decide refinancing makes sense to take advantage of lower interest rates, get better loan terms, pay off your loan faster, or eliminate mortgage insurance. If you’re wondering how to refinance a home, here are important steps you’ll need to take.

How to decide if it makes sense to refinance

Since you’ll likely pay closing costs when you refinance, you’ll want to weigh the costs versus the benefits. One way to do this is to determine the “break even” point. For example, if your closing costs are $2,400 and you’re saving $100 per month on your new loan, it will take two years (24 months x $100 per month saved) to break even and start saving.

Refinancing can make financial sense when you reach your break-even point quickly. If it will take several years to break even, you might decide refinancing doesn’t make sense. Our home refinance calculator can help you estimate how much you might save by refinancing.

Research your home refinance loan options

You can refinance a home with a conventional, VA, FHA, or USDA loan. Which one you choose depends on factors such as your current loan type, your financial goals, your home’s value, and if you have mortgage insurance. Here’s a closer look at refinancing options.

  • Conventional refinances. There are several advantages to conventional refinances. Regardless of your loan type—VA, FHA, or USDA—you can refinance into a conventional mortgage. You can also refinance a house that isn’t your primary residence, including vacation houses and rental or investment properties. And if you have 20% equity or more in your home, you can often avoid paying mortgage insurance with your new loan. Learn more about conventional mortgage refinances.
  • VA IRRRL streamline refinances. VA streamline refinances offer an easier and faster way to lower your rate or get better terms compared to conventional loans. If you currently have a VA loan and are up to date on your payments, you may be eligible to take advantage of a VA IRRRL streamline refinance.
  • FHA streamline refinances. An FHA streamline refinance is a good option when you already own a home with an FHA loan. The application involves less paperwork and has easier credit requirements compared to a conventional loan. However, when you refinance an FHA loan you will need to pay mortgage insurance premiums regardless of the value of your home’s equity. Learn more about FHA streamline refinances.

Review your finances and credit

Your eligibility for a loan refinance and the interest rate we can offer you can depend on your credit score. In many cases, a higher credit score can help you get a lower rate. Make sure to review your credit report to ensure it’s accurate. While your chances of getting approved for a refinance are better with a higher credit score, Freedom Mortgage can often help you get approved with a lower score.

Calculate your loan-to-value ratio

Your home’s current fair market value is used to calculate your loan-to-value (LTV) ratio. There are maximum LTV ratio conditions that apply for some refinances, and you’ll need to meet these ratios to be eligible. Here’s an example of how a home’s LTV is calculated:

  • Fair market value of your home is $250,000
  • You’re refinancing it with a $200,000 mortgage
  • $200,000 ÷ $250,000 = 0.80
  • Your LTV ratio is 80%

The lower your LTV is, the more likely you’ll be approved for refinancing. It may also impact the interest rate you’ll receive.

Find out the interest rate Freedom Mortgage can offer you!

Freedom Mortgage may be able to offer you a refinance interest rate that’s lower or higher than the rate you see offered by other lenders. The rate you may receive from us depends on your credit score, income, finances, current market conditions, and the type of refinance loan you want. By refinancing, the total finance charges may be higher over the life of the loan.

Submit a mortgage application and documentation

Most conventional refinances will require you to complete a new application and provide documentation. Streamline refinances often have less paperwork and an easier application process compared to conventional refinances. If you are a current Freedom Mortgage customer, you may be able to start your streamline application by calling or going online. Learn more about how to apply for a mortgage.

Review documents and attend closing

There are a few things you can expect after applying for a mortgage refinance. You will receive the initial disclosure and will need to express your intent to proceed with the refinance application in order to move forward. You can review and sign your disclosures electronically after providing your "e-consent" rather than having them mailed to you—this helps speed up the process.

Your application will be reviewed by our underwriting team. You may need to provide some additional documentation. A timely response to these requests will keep the process moving. Once your loan has been approved, we’ll let you know and provide you with next steps including a review of your Closing Disclosure and scheduling a closing date. Finally, you will need to attend your closing to sign mortgage documents and pay any closing costs. Learn more about our mortgage application process.

Last reviewed and updated January 2024 by Freedom Mortgage Corporation.

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