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9 Steps to Refinance Your Mortgage

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Refinancing your mortgage can often reduce your monthly payment and lower total interest costs. But it's important to know the steps to refinancing to ensure it's the right financial choice and to maximize your chances of getting a new loan at the most competitive rate. Here are the nine steps to take to refinance your mortgage.

9 steps to refinancing

Ready to refinance? Here's what you'll need to do.

1. Check your financial credentials

Refinance lenders consider your credit score, income, career history, and level of debt relative to your income. If your credit score is low, you don't have proof of sufficient income to pay your loan, or you owe a lot relative to what you earn, you may not qualify for affordable refinance rates. Start by checking your credit score and other financial credentials to make sure they're healthy.

2. Decide on the type of refinance loan you need

Do you want a cash-out refinance loan, which means you borrow more than you currently owe and get some cash back? Or would you prefer a refinance loan that changes the interest rate and payment terms of your current loan without tapping into equity? Deciding what type of refinance you're looking for is an important step in the refinance process.

Next, decide if you want a 15-year, 20-year, or 30-year refinance loan. The longer the repayment timeline, the lower your monthly payment -- but the more interest you pay over time.

Finally, choose whether you're interested in a government-insured loan or a conventional loan without a government guarantee. Government-backed loans, such as FHA refinance loans, can be easier to qualify for, but often come with more upfront fees.

3. Determine the amount of equity in your home

Most lenders don't allow a refinance loan valued at more than 90% of what your home is worth. And if you borrow more than 80% of your home's value, you'll probably owe mortgage insurance.

You can use online estimates of your home's value and compare that to what you owe to determine how large a refinance loan you're likely to qualify for. If you owe more than 90% of what your home is worth, you may be unable to refinance, or you may have a more limited choice of lenders.

4. Shop around for a mortgage refinance loan

Lenders charge different refinancing rates. Compare interest costs, origination fees, and qualifying requirements from at least three lenders to find the most affordable borrowing option.

Make sure you're comparing similar loans. For example, compare 15-year fixed-rate loans with other 15-year fixed-rate loans. A mortgage calculator can help with these comparisons.

For more on mortgage shopping, check out our guide on the topic.

5. Decide which lender to work with

Choose the lender offering you the best terms. This could be a local bank, credit union, or onlinemortgage lender.

6. Submit your loan application

Submit a refinance application with your lender. This involves providing some basic financial information. Most lenders now accept applications online, including digital copies of supporting documentation.

7. Decide whether to lock in your rate

It can take time to complete the refinancing process, and rates can change quickly. Some lenders allow you to lock in at the rate you are initially approved for. There may be a fee for this.

If you lock in your rate, you borrow at that rate even if rates go down before closing -- unless you opt for a float down provision. There could be an additional cost, but it means your rate declines if interest costs fall before you close.

8. Get your property appraised and inspected

Lenders want to make sure your home is sufficient collateral to guarantee the loan. They often ask for an inspection to ensure it is structurally sound, and an appraisal to confirm its value. You may also need to provide a flood elevation certificate and a survey.

9. Close on your loan

If your financial credentials check out and there is no problem with your inspection or appraisal, your lender moves forward with the loan. Your lender schedules a closing date. Your current loan gets paid off on that date, and you become responsible for paying your new refinance loan. For more on the closing costs associated with refinancing, read our guide.

To recap, here are the 9 steps to refinance your mortgage

  • Check your financial credentials
  • Decide which type of refinance loan you need
  • Determine the amount of equity in your home
  • Shop around for a mortgage refinance loan
  • Decide which lender to work with
  • Submit your loan application
  • Decide whether to lock in your rate
  • Get your property appraised and inspected
  • Close on your loan

Still have questions?

Here are some other questions we've answered:

FAQs

  • To refinance your mortgage:

    • Check your credit score, income history, and debt balance.
    • Choose whether you want a cash-out refi or a different type of refinance, and decide on your loan term.
    • Estimate the value of your home to determine how much you'll qualify to borrow.
    • Get rate quotes from at least three mortgage refinance lenders.
    • Apply with the lender that offers the best rates and terms, and consider locking in your rate.
    • Complete your lender's requirements, such as an inspection and approval.
    • Close on your new home loan.
  • To refinance in as few steps as possible, consider using a website that allows you to compare mortgage rates, terms, and qualifying requirements without visiting multiple lender websites. This streamlines the refinance process by making comparison shopping for the best mortgage loan easier. It can get you to the approval process more quickly with your ideal mortgage lender.

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