Mortgage refinance: A guide to refinancing your home

A mortgage refinanceec-refinance-hl000061 may be an effective financial strategy to save money and secure more manageable loan terms, though it comes with some considerations to keep in mind. Understanding when and why a refinance might make sense is a good first step in getting the most out of this potentially valuable tool. But what exactly is a mortgage refinance? And are there different types of refinancing? Let’s explore mortgage refinancing to help you better understand your options.

What does it mean to refinance a mortgage?

A mortgage refinance involves switching your old mortgage to a new one, usually with different rates and terms, that's ideally more favorable for your financial situation. You might pursue refinancing to save money on your monthly payment, make changes to your mortgage terms or alter your mortgage type to better align with your financial goals.

Refinancing may offer possible advantages, depending on your financial situation, but it also involves some additional fees and refinance costs to consider. To determine if a mortgage refinance makes sense for you, consider speaking with a qualified home lending advisor for more tailored guidance.

How does mortgage refinancing work?

Mortgage refinancing replaces your current mortgage with a new one. Much like your original mortgage, the refinancing process involves a thorough review of your current financial status. Lenders reassess your credit score, home equity and debt-to-income ratio to figure out your eligibility for the new loan terms. This reassessment is one reason homeowners might consider refinancing.

Types of mortgage refinance

There are many types of mortgage refinancing, each catering to different financial needs and goals. Note that Chase may not currently offer some or all of the following products. Speak with a qualified home lending advisor to learn more about the options available to you. Let’s break down a few commonly offered types of refinancing:

• Rate-and-term refinance: This option allows you to replace your current loan with a new on that has either a different interest rate, a different term,  or both. The primary aim is generally to secure terms that suit your current financial situation better,  while the principal balance remains the same.
• Cash-out refinance: A cash-out refinance allows you to replace your existing mortgage with a new loan for more than you currently owe, leveraging equity you’ve built up in your home. This type of mortgage refinance might be more suited for those who need funds for significant expenses, such as home renovationstax-deductibility or debt consolidationec-debt-consolidation-hl000039.
• Cash-in refinance: In a cash-in refinance, you make a lump-sum payment toward your new mortgage upon closing. This is typically done in exchange for a lower interest rate, better terms or to avoid private mortgage insurance.
• Streamline refinance: Some lenders offer “streamline refinancing” for existing customers, designed to help make the refinancing process simpler and less costly. Since you’re working with the same lender as your previous mortgage, streamline refinancing often requires less paperwork and fewer upfront costs.
• No closing cost refinance: A no closing cost refinance allows borrowers to refinance without paying the upfront fees usually required. The lender may charge a slightly higher interest rate or fold the closing costs into the total loan amount.

Should I refinance my mortgage?

Mortgage refinancing offers a few potential benefits to homeowners looking to realign their mortgage terms with their financial goals — but does have important caveats to consider.

Why refinance a house?

Here are some of the most common reasons homeowners pursue mortgage refinancing:

• Lower monthly payments: Lower interest rates help reduce your monthly payment as well as the total amount you'll pay over the life of your loan. While you may be able to get a lower payment simply by extending the term of your loan, many borrowers also look to reduce their payment by refinancing to a new interest rate that’s lower than their current one.
• Faster mortgage repayment: Perhaps you’re in a better financial situation than when you first got your mortgage and want to change from a 30-year loan to a 15-year loan. Your monthly payment may end up being higher (depending on the specifics of your refinance offer), but you’ll pay less interest over the life of your loan.
• Change from an adjustable-rate mortgage:arm-fixed-interest Unlike fixed-rate mortgages, adjustable-rate loans can change over time. Perhaps you think rates can’t get much lower, or maybe you don’t want the uncertainty of changing rates and want to lock in a set rate for the life of your loan. A fixed-rate mortgage offers a more predictable monthly payment which could help with budgeting.

When does it not make sense to refinance?

There are some circumstances when you wouldn’t want to refinance as the costs would likely outweigh the benefits. These include:

• You're moving soon: If you don't plan to stay in the same house or sell it, you won't be able to enjoy the savings from your lower interest rate because it could take a few years to recoup the money you spent on closing costs for the refinance loan.
• Extended interest payments: If you’ve had your existing 30-year mortgage for 15 years, and you refinance into another 30-year mortgage, you may have a lower monthly payment, but you'll probably end up paying quite a bit more in interest over the life of your loan. It might be better to seek a shorter loan term or stick with your existing mortgage rather than dramatically extend your loan period.
• High closing costs: In some cases, closing costs on a mortgage refinance may be significant. In those cases, it might not make sense to take on this added cost or roll them into a new loan.

How to refinance a house

The process can be like taking out your original mortgage but may have fewer requirements and a more streamlined timeline. Here’s how it usually works:

1. Prepare your finances

Just like your existing mortgage, you'll have to provide proof of income and other financial information when you apply for a refinance. You may need documents like bank statements, pay stubs and tax turns to apply for most refinancing loans. Getting these together before you apply can help make the process go more smoothly.

2. Identify a lender

For many homeowners, the process begins by finding a lender. Note that this doesn’t necessarily have to be your original mortgage lender — you’re allowed to shop around. You might choose a lender based on who can give you the lowest interest rate, but you should also consider the amount of closing costs. Each potential lender will usually give you a loan estimate document with the new terms, an estimate of your closing costs, your new monthly payment and other fees you’ll have to pay. The estimate may not be exact but is designed to provide a general idea of your potential loan.

3. Get ready for closing

If your application is approved, you may only need to provide the requested documentation and wait for the loan papers to be ready. In other cases, your lender may require an appraisal of the property or additional information to close the loan.

It may also be wise to gather any cash needed for closing. Your loan estimate should tell what the closing costs are, and whether they can be folded into the loan. Your lender will also generally provide a closing disclosure with final costs before closing.

4. Complete the closing process

Closing day on a mortgage refinance might not carry the same gravity as when you first purchased your home, but it can still be exciting. Once the closing process is complete, it's generally recommended to keep copies of your loan documents in a safe place. You’ll also likely want to update any automated payments that you make for your mortgage to reflect the new lender and amount.

Refinance requirements and qualifications to consider

Because lenders evaluate your refinancing application similarly to a new mortgage, the general requirements and qualifications are similar:

• Credit score: As with a standard mortgage, your credit score is a major factor that lenders evaluate when determining what refinancing rates and options to offer. Higher scores tend to qualify for lower interest rates.
• Home equity: Some lenders may require you to have built up a certain amount of equity in your home before becoming eligible for refinancing. Speak with your prospective lender to clarify their refinancing policy.
• Debt-to-Income (DTI) ratio: A lower DTI ratio helps demonstrate to lenders that you can manage additional debt repayments and is another factor lenders weigh when assessing your financial profile.
• Length of homeownership: How long you’ve owned your home can also influence lender confidence, as a longer ownership period may reflect financial stability and reduce perceived risk.
• Closing costs: Refinancing typically comes with similar closing costs as your original mortgage. Common costs include appraisal fees, attorney fees and other administrative costs. These can sometimes be rolled into the new loan, depending on the lender’s policies.
• Proof of income: Lenders will generally require proof of income as part of reviewing your overall financial profile. This helps to ensure you have the means to make the new mortgage payments.

In summary

A mortgage refinance involves taking out a new home loan to pay off your existing mortgage. Generally, homeowners refinance a mortgage to reduce monthly payments, lower the total cost of borrowing or otherwise alter their loan terms to better suit their current financial situation or future financial goals. Speaking with a qualified home lending advisor can help clarify if a mortgage refinance makes sense for you.

Mortgage refinance FAQs

1. How soon can you refinance a mortgage?

How soon you can refinance varies by lender. Generally, lenders impose a certain waiting period to establish a payment history and demonstrate financial stability. Speak with your lender to understand any specific requirements they may have.

2. How long does it take to refinance a house

Refinancing a house typically takes several weeks to complete based on your lender and their capacity. The exact timeframe generally varies based on the complexity of your financial situation, the type of refinance and the lender’s respective processes.

3. How often can you refinance a mortgage?

There is no official limit on how often you can refinance a mortgage. Each mortgage refinance is at the discretion of the individual lender and it’s generally wise to consider the closing costs and potential impact on your financial goals each time you refinance. 

4. Does a refinance hurt your credit?

Lenders typically carry out a hard credit inquiry which can temporarily impact your credit score. However, consistent on-time repayments on the new mortgage may help your score recover and potentially improve over time.

5. How much can I save if I refinance my house?

The amount you can save by financing your house depends on several factors, including the difference in interest rates, the new loan term and the total amount of the loan. Refinancing to a lower interest rate or a shorter term both have the potential to significantly reduce the amount of interest paid over the life of the loan.