Refinancing your mortgage can reduce your monthly payment and save you money in the long term – especially if you can qualify for a lower interest rate than you’re currently paying. Before you make a move, though, do your homework. Learn how mortgage refinancing works, how to choose the best mortgage refinancing company and how to decide whether a home refinance is right for you.
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To calculate each score, we use data about the lender and its loan offerings, giving greater weight to factors that matter most to borrowers. For mortgage lenders, we take into account each company’s customer service ratings, interest rates, loan product availability, minimum down payment, minimum FICO score and online features.
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Caliber Home Loans of Coppell, Texas, offers mortgage products nationwide. Options include conventional, adjustable-rate, jumbo, refinancing, Federal Housing Administration, U.S. Department of Agriculture and Department of Veterans Affairs loans. Caliber has been in business since 2008, and is solely focused on home lending products.
Carrington Mortgage Services, founded in 2007, offers an array of mortgage and refinancing options to borrowers seeking conventional or government-backed loans. Its California-based parent company, Carrington Holding Co., was established in 2003 and provides a range of real estate services. Carrington Mortgage Services is based in California and also has offices in Arizona, Connecticut, Florida, Indiana and Maryland.
Pentagon Federal Credit Union, widely known as PenFed, offers borrowers access to many types of mortgages: conventional, adjustable rate, jumbo and Department of Veterans Affairs, plus refinancing loans and home equity lines of credit. The financial institution, which serves 2.5 million members, was established in 1935 and is based in McLean, Virginia.
North American Savings Bank, or NASB, is a Missouri-based bank and lender founded in 1927 that offers home mortgages nationally. NASB provides a variety of mortgage options, including conventional, Federal Housing Administration and Department of Veterans Affairs loans, and products for borrowers who might otherwise have trouble getting a mortgage.
AmeriSave Mortgage Corp. is an online lender that has been in business since 2002. It was one of the first to offer an offsite, digital mortgage experience for customers. The company says it has financed more than 664,000 borrowers since it began operating. With headquarters in Atlanta, AmeriSave services loans in 49 states and Washington, D.C.
Homeowners were able to take advantage of record-setting low mortgage rates during the COVID-19 pandemic, but 30-year fixed rates have risen in recent months from about 3% in December 2021 to 5% currently. As a result, demand for mortgage refinancing has fallen in 2022 so far, the Mortgage Bankers Association says. The industry group expects mortgage interest rates to stay above 5% for the most of the remainder of the year.
To combat higher rates, some borrowers may be considering refinancing to a shorter-term loan, such as a 15-year mortgage term. Average rates for this loan term are typically much lower than they are for the 30-year term, although your monthly payments will likely be higher since you may be paying off your loan faster. Here are the current mortgage rates as of June 9, according to Freddie Mac:
- 30-year fixed: 5.23% with 0.9 points (up from 5.09% a week ago, up from 2.96% a year ago).
- 15-year fixed: 4.38% with 0.8 points (up from 4.32% a week ago, up from 2.23% a year ago).
- 5/1-year adjustable: 4.12% with 0.3 points (up from 4.04% a week ago, up from 2.55% a year ago).
U.S. News Survey
U.S. News Survey: Ultralow Mortgage Rates Fuel a Refinancing Frenzy in 2020
In 2020, homeowners rushed to refinance, hoping for lower interest rates, lower monthly payments or perhaps both, as mortgage rates hit historic lows.
With rates igniting a refinancing boom, U.S. News in fall 2020 surveyed homeowners who refinanced within the previous six months to find out their goals and results. The survey revealed that many people refinanced to lock in low interest rates, yet failed to properly shop around for the lowest rates.
Additional Survey Insights
Record-low interest rates drove more than 75% of respondents to refinance.
Reducing interest rates and monthly payments were the main reasons cited for refinancing.
Most respondents didn’t cash out equity.
Fewer than a quarter of respondents said they adequately shopped for the lowest interest rates.
U.S. News Survey Methodology
- U.S. News ran a nationwide survey in September and October 2020.
- The survey sample came from the general American population, and the survey was configured to be representative of this sample.
- The survey was screened to include homeowners who refinanced their mortgages within the last six months.
- The survey asked 10 questions related to refinancing a mortgage.
A mortgage refinance replaces your original mortgage with a new one, ideally with a lower interest rate. You’ll get a new interest rate and other loan terms, and you can make other changes to the loan, such as trading an adjustable-rate mortgage for a low fixed-rate mortgage.
What Happens to Your Old Mortgage When You Refinance?
The lender pays off your old home loan, and you begin making payments on your new mortgage.
Here are some common types of refinance loans for mortgages:
- Rate-and-term refinance. This is the most common type of mortgage refinancing. You’ll take the balance of your original mortgage and borrow at a different rate and terms. You should get a lower interest rate, and you can switch from an adjustable-rate loan to a fixed-rate loan, or vice versa. For example, you could refinance a 30-year adjustable-rate mortgage to a 15-year fixed-rate loan.
- Cash-out refinance. This can offer a change of interest rate and other terms, but you’ll increase your remaining mortgage balance. It gives you cash at closing, which is added to your outstanding mortgage debt. For a cash-out refinance, keep in mind that you must have enough equity built up in your home to take cash out against it.
- Cash-in refinance. This is less common than rate-and-term refinance or cash-out refinance. You’ll bring cash to the closing table to pay down your loan balance with this type of mortgage refinance. It’s an interest-saving option if you’ve got the cash to do it because this type of loan can offer a lower mortgage rate, shorter repayment term or both.
- Streamline refinance. Qualified homeowners with a mortgage through the Federal Housing Administration, Department of Veterans Affairs or Department of Agriculture may be eligible for more affordable terms if they refinance through these government programs. Exact qualification requirements vary between the FHA, VA and USDA, but streamlined options usually involve less paperwork and may not require another appraisal.
- No-closing-cost refinance. With this refinancing option, borrowers don’t have to pay closing costs when taking out a new loan. Instead, the borrower is charged a higher interest rate, which allows the lender to apply the premium toward closing costs. Essentially, the borrower forgoes closing costs but will pay more interest over the life of the loan.
Mortgage refinancing makes sense when you can use it to save on interest, access home equity or both. Consider some reasons people refinance a mortgage:
- Interest savings. A lower mortgage refinance rate will reduce your monthly mortgage payment, as long as you do not borrow more money or shorten your loan term. In fact, a new loan with a lower rate might help you build equity in your home faster than you would with a higher interest rate. Shorter loan terms, such as switching from a 30-year to a 15-year fixed-rate mortgage, can also offer interest savings and allow you to pay off your mortgage sooner, although this may result in higher monthly payments.
- Longer terms and lower monthly payments. Longer loan terms, such as a 30-year fixed-rate mortgage, will lower your monthly payment. Usually, a mortgage with a longer term will have a lower monthly payment than a mortgage with a shorter term. But the longer you take to pay off your loan, the more interest you will pay overall.
- Switching from an adjustable rate to a fixed rate. Converting from an adjustable-rate to a fixed-rate loan locks in your interest rate, preferably at a lower rate. You may want to do this if mortgage refinance rates are low and you plan to stay in your home for more than a few years.
- Switching from a fixed rate to an adjustable rate. Some homeowners who plan to move within a few years choose to switch from fixed-rate to adjustable-rate mortgages. Compared with a fixed-rate mortgage, an ARM could provide a lower rate for the first few years. That means big interest savings if you won’t live in your house for long.
- Converting home equity into cash. Cash-out refinancing converts your home equity into cash that you can use to pay for home improvements or to pay off debts, such as a second mortgage or a high-interest credit card balance. But exercise caution with your home equity; avoid using it to finance short-term expenses for what could amount to long-term debt.
To refinance your home, you’ll need to prove your creditworthiness and income as you would with any other mortgage. But refinancing adds another layer: home equity.
Before you apply for a refinance, put yourself in the best position to get a good interest rate and terms. Check your credit, and identify errors and areas for improvement. Pay down any balances, and correct mistakes on your credit report.
Credit score. Generally, home loan refinance lenders require a minimum credit score of 620 for conventional loans. But you could qualify for refinancing with special programs, such as government-backed loans, if you have a lower credit score.
Debt-to-income ratio. You’ll also need sufficient income to qualify for your refinance. If your income has stayed the same or increased while your home loan balance decreased, you should have no problem with approval. Most lenders won’t approve a loan with a monthly mortgage payment that’s more than 30% of your total gross monthly income. For example, if you earn $5,000 per month, your monthly mortgage payment shouldn’t be more than $1,500.
Loan-to-value ratio. Lenders assess your loan-to-value ratio to determine risk. LTV measures how much you owe on your home loan compared with your home’s market value. Typically, mortgage refinancing companies look for at least 20% home equity and an LTV ratio of up to 80%.
You’ll pay fees to refinance, just as you would for a brand-new mortgage. Expect to pay closing costs similar to your original mortgage, generally about 2% to 5% of the loan amount. This may include lender fees, such as the origination fee, and third-party fees for inspection and appraisal.
On average, homeowners pay around $5,000 to refinance a mortgage, according to Freddie Mac. Before you refinance, make sure you do the math by using a mortgage refinancing calculator to determine whether your interest savings can offset your closing costs.
- You could save money now and over time. One of the primary goals of refinancing is to lock in a lower mortgage rate. By doing so, you’ll typically be able to reduce your monthly mortgage payments and save money on interest charges over the life of the loan.
- You may pay off your mortgage faster. You may choose to shorten your repayment term, such as refinancing a 30-year mortgage into a 15-year mortgage. This helps you get out of debt faster and save a substantial amount of money over time.
- You can lock in a fixed interest rate. Refinancing from an adjustable-rate mortgage to a fixed-rate mortgage lessens the risk that your interest rate – and monthly payments – will rise substantially at the end of your fixed period.
- You can access your home’s equity. A cash-out refinance allows you to tap into your home’s equity, which you can use to meet other financial goals, like renovating your house or paying off higher-interest debt.
- You may be eligible to eliminate PMI. Once you’ve hit a loan-to-value ratio of 80% or less, you may consider refinancing to get rid of private mortgage insurance.
- You’ll have to pay closing costs. Your potential interest rate savings may be offset by closing costs when you refinance your mortgage. Calculate your potential interest savings, so you can determine whether refinancing is worthwhile.
- You may pay more over time. If you refinance from one 30-year mortgage into a new one, you’re essentially restarting the clock on your mortgage debt. This makes your home loan more expensive to repay, even if you’re able to lower your monthly payments.
- You’re taking on more debt. In the case of a cash-out mortgage refinance, you’re adding to your total debt balance in order to tap into your home’s equity. This will lead to higher overall loan costs.
- You may be charged a prepayment penalty. Some mortgage lenders charge prepayment penalties to borrowers who repay their loan before the term ends. Read your original loan disclosure to see if your lender charges this fee.
Picking the best place to refinance your mortgage is key. You can narrow down lenders based on mortgage products offered, interest rates and customer service ratings.
Choosing a mortgage refinancing company starts with finding one that offers the refinancing product you want. Mortgage lenders offer a variety of refinancing loans, including:
- 15-year fixed-rate mortgage refinance.
- 30-year fixed-rate mortgage refinance.
- FHA refinance.
- VA loan refinance.
- USDA loan refinance.
- Adjustable-rate mortgage refinance.
- Jumbo loan refinance.
Once you find the right product, you can find the right price. Prequalify with a few mortgage refinance lenders to compare mortgage rates, and find out whether you meet minimum credit score requirements.
Shopping around allows you to compare interest rates side by side. They may look similar, but even a fraction of a percentage point can lower your monthly mortgage payment and save you a lot of money over time, especially on a larger loan.
As you compare rates, be sure to look at the annual percentage rate. The APR reflects the interest rate and other costs, and it represents the true annual cost of a loan.
Mortgage Refinance Company Customer Service Ratings
Because mortgage refinancing is a long-term commitment, you should choose a refinance company that can offer good customer service. Read reviews, ratings and complaints to find out what other consumers have to say about a lender.
You can refinance with your current mortgage company if you’re happy with its service and it offers a competitive interest rate. It’s still important to make sure you thoroughly understand the terms of your new mortgage before you sign, though; just because you’ve had a good experience with your first mortgage through a certain lender doesn’t mean you shouldn’t research other options.
- Gather information. Lenders need details about your original mortgage – like the interest rate and the balance on your current loan. Much of this information is on your mortgage statement. You should also check your credit score and find ways to improve it, if necessary.
- Get preapproved. Mortgage preapproval allows you to see the actual loan amount and interest rate you can expect if you apply. A preapproval is not a commitment to lend, and you should shop around to find which lender is right for you. Limit your comparison shopping to a 45-day window to reduce the negative impact to your credit score.
- Apply. Once you determine which refinance loan is best for you, fill out the application. You’ll need to include documentation such as proof of home insurance, your most recent pay stubs, and a driver’s license or other form of identification.
- Field follow-up questions from the lender. The lender may have other questions for you after reviewing your application, such as asking you to explain an employment gap.
- Get your home appraised. Often, the lender will work with you to set up an appointment for an appraiser to determine the value of your home. A home appraisal is usually an upfront cost for you, which can be rolled into your closing costs. If your appraisal is satisfactory, you can schedule closing.
- Sign documents at closing. You should receive your closing disclosure prior to actually closing, and you should compare this with the loan estimate you received at the outset of the refinancing process. Just like when you initially bought your home, closing involves signing multiple documents.
- Get set up with your new lender. Your escrow company and your former mortgage company will be paid after you close on your new loan. As you’re between mortgage companies, you may have some time between closing and when your first payment on your new loan is due.
A mortgage refinance is not the best decision for everyone. Here are some reasons you might want to stick with your current loan:
- You’ve had your mortgage for a long time. If you’ve had your loan for a long time – generally, at least 10 years for a 30-year loan – you reach a point where you’ve paid most of the interest and are building equity. When you refinance a loan, you restart the loan amortization process and revert to paying more interest than principal. However, you could potentially refinance to a shorter-term loan to avoid this drawback.
- Your current mortgage has a significant prepayment penalty. Some lenders charge a prepayment penalty for paying off your loan early, even to refinance. If you refinance with your current mortgage company, you can request that this fee be waived.
- The fees outweigh the savings. If you want a lower interest rate to save money over time, you’ll only achieve your goal if you own the property long enough for the lower monthly payments to offset closing costs. Find your break-even point – when your savings are equal to the costs of your new loan – by dividing your total closing costs by your monthly savings.
- You plan to sell your home in the next few years. If you sell your home before you break even on the cost of a refinance, you could waste money by refinancing the loan.
Technically, there’s no legal limit to the number of times you can refinance your mortgage. But lenders may have restrictions on how often you can refinance within a short period of time, and there are other factors to consider.
Remember that there are certain costs associated with refinancing. You may need to pay closing costs, including inspection and appraisal fees, title insurance, and attorney review fees.
Make sure you understand the terms and conditions of your home loan before applying for another one. Depending on the lender and the terms of your current loan, you may face a prepayment penalty if you pay it off early.
There may be a waiting period between loans you can take out. Some lenders may require you to wait six months before refinancing with that particular lender again, regardless of the loan type, while others may not require a waiting period for a rate-and-term refinance for a conventional loan. Most government-backed loans typically do have a time requirement.
- Mortgage recasting. A mortgage recast is when you put a large lump-sum payment toward your mortgage principal, which allows your lender to update your monthly payment. You’ll keep the same interest rate and repayment term, and you’ll pay a small recasting fee instead of closing costs. This may present a cheaper option than refinancing, especially if you have a low mortgage rate already.
- Loan modification. You may be able to extend your repayment term, reduce your interest rate or switch from an ARM to a fixed-rate loan through your current lender without going through the refinancing process. Not all mortgage lenders offer loan modification, so check with your lender to find out what’s available to you.
- Home equity loan or line of credit. If you’re looking to tap into your home’s equity with a cash-out refinance, you should also consider alternatives like a HELOC or home equity loan. Also known as a second mortgage, this type of loan allows you to borrow against your home’s equity in addition to your original mortgage. If you currently have a low mortgage rate, a second mortgage may make more sense than refinancing.
Veterans United Home Loans offers mortgages in all 50 states and Washington, D.C., and specializes in Department of Veterans Affairs loans. Since 2016, Veterans United Home Loans has generated the largest number of VA purchase loans per year in the nation. The lender was founded in 2002 and is based in Columbia, Missouri.
Founded in 1990, Freedom Mortgage is one of the country’s largest loan originators and services, operating in all but two states plus the District of Columbia, the U.S. Virgin Islands and Puerto Rico. Based in Mount Laurel, New Jersey, Freedom Mortgage was named No. 1 Veterans Affairs lender and No. 1 Federal Housing Administration lender by the industry publication Inside Mortgage Finance. Freedom Mortgage offers a range of mortgage loans, including conventional, adjustable-rate, refinance, FHA, VA and U.S. Department of Agriculture. But what Freedom Mortgage is known for is its mission to help American military personnel purchase a home.
LoanDepot is a mortgage lender that operates nationally with more than 200 branches and delivers both a digital experience and face-to-face service. The lender offers fixed- and adjustable-rate conventional mortgages, Federal Housing Administration and Department of Veterans Affairs loans, as well as refinance and renovation loans. The company was founded in 2010 and is based in Foothill Ranch, California.
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