Refinance

Refinancing means paying off an existing loan with a new loan that has different terms. The most common reasons to refinance are to lower the interest rate, shorten or lengthen the loan term, switch from an adjustable to a fixed rate, or access home equity through a cash-out refinance.

The general rule of thumb is that refinancing makes sense when you can lower your rate by at least 0.5% to 1% and plan to stay in the home long enough to recoup closing costs, which typically range from 2% to 5% of the loan amount. Calculate the break-even point by dividing closing costs by monthly savings.

Rate-and-term refinancing simply changes the loan's interest rate or term without changing the loan amount. Cash-out refinancing replaces the existing mortgage with a larger loan, allowing you to pocket the difference. Streamline refinancing programs from FHA and VA offer simplified processing with reduced documentation requirements.