Best Mortgage Refinance Lenders of June 2020

Refinancing your mortgage can be a real hassle. It takes a lot of paperwork, there are usually closing costs, and then there's all the research. You have to figure out the right rate and term, and -- most importantly -- find the right refinance lender who's going to give you the best possible deal.

We can't solve the paperwork or closing costs for you (sorry!), but we've done the research to identify who we believe to be the best mortgage refinance lenders that are likely to offer the best refinancing rates.

Refinancing a mortgage (or any other type of loan for that matter) refers to the process of obtaining a new loan -- typically with better terms -- for the purpose of replacing an existing one.

When it comes to mortgages, you can simply refinance your existing loan balance. Or, if you have significant equity in the home, you could choose to get a new loan for a higher amount and get some cash in the process.

The short answer is "it depends." Your refinancing rate depends on market conditions, your FICO® Score, and the loan-to-value ratio, or LTV ratio of your home. When refinancing, your goal should be to get an interest rate that is in-line with or better than the current market average for people with your credit score.

Refinancing your mortgage is a great way to access your home equity or change the financial circumstances around your mortgage. It can be a powerful weapon for a homeowner who's kept up with their mortgage payments.

You may want to refinance your mortgage if you're looking to:

• Reduce your monthly mortgage payment. If you're 10 years into a 30-year mortgage, you can refinance the remaining amount to spread those 20 years of payments across 30 years, lowering your monthly payment. This may also allow you to…
• Lock in a lower interest rate. Mortgage interest rates are still near historic lows, so a refinance, or refi, can be had for a pretty low rate. If you've had a mortgage for a while and have made your payments on time, a new lender may be willing to offer you a lower rate than what you're currently paying -- potentially saving you thousands of dollars. Even a small change can make a big difference, for example, you'll pay $8,353 more with a 4.2% rate than a 4% one on a 30-year mortgage for $250,000.
• Convert an adjustable-rate mortgage (or ARM) to a fixed-rate mortgage. ARMs are interest-rate sensitive, so they can start to get pretty expensive as interest rates increase. A refi is a great opportunity to lock in a fixed-rate mortgage for the remainder of your home loan, and now is a great time to get that done before the Federal Reserve increases rates.
• Tap home equity to pay for a large project (like an addition or a remodel). While a refi isn't the only way to get funds for a home-improvement project, it means you aren't paying service on extra debt (unlike, say, with a home-equity line of credit or a second mortgage) -- instead, you're just converting some of your equity to cash. This is known as a "cash-out refi."

Make sure you're doing a refi not just because you can, but because you need it to achieve your financial goals.

The main risk of refinancing is that it won't be as worthwhile as you think. We'll get into this a bit more in the next section, but a lower interest rate on your mortgage only makes sense if it saves you money relative to the cost of the loan itself.

It can also be risky if you're refinancing from an adjustable-rate mortgage to a fixed-rate loan, or vice versa. For example, let's say that you have a fixed-rate mortgage at 5% and you refinance to an adjustable-rate mortgage that has a 3% interest rate for five years, but then adjusts annually after that. If market interest rates spike, you can end up paying significantly more interest over time than you would if you had simply kept your existing mortgage.

The short answer is that refinancing isn't right for everyone, so it depends on your situation. It largely depends on how much it costs to refinance and how long you plan to stay in your home.

Refinancing your mortgage isn't free -- there will be some sort of lender fees and closing costs to worry about. If you plan to stay in your home long enough that you'll save more in interest than you pay to refinance, it can be a smart idea.

Here's a simplified example. Let's say that you can lower your monthly mortgage payment by $50 if you refinance, but it will cost you $2,000 in various fees to get the loan. Dividing $2,000 by $50 shows that you would need to stay in the home for at least 40 months for refinancing to be worthwhile.