Refinancing Your Mortgage

On this page

• When Refinancing Makes Sense
• If You Might Move Soon
• What Does Refinancing Cost
• Understanding Discount Points
• Understanding Rate Locks
• Refinancing With Imperfect Credit
• Choosing a Lender Beyond the Interest Rate
• Your Three-Day Right to Cancel

When Refinancing Makes Sense

Refinancing can be worth considering when your current mortgage no longer fits your financial needs or long-term goals. While interest rates are an important factor, they aren't the only thing to consider.

One way to evaluate a refinance is by calculating your break-even point. This helps you understand how long it may take for your monthly savings to offset the costs of refinancing.

For example, if refinancing costs $3,000 and reduces your monthly payment by $150, it would take approximately 20 months to recover those costs.

However, monthly payment savings don't always reflect the full financial picture. Changes to your loan term, interest costs, and loan balance should also be considered.

Homeowners refinance for several reasons, including:

• Switching to a fixed-rate mortgage. Moving from an adjustable-rate mortgage to a fixed-rate loan can provide more predictable principal and interest payments.
• Removing mortgage insurance. Depending on your equity and loan eligibility, refinancing may allow you to eliminate certain mortgage insurance requirements.
• Changing your Loan term. A shorter repayment term may help reduce total interest costs, although monthly payments could increase.
• Accessing Home Equity. A cash-out refinance allows eligible homeowners to access a portion of their equity for expenses such as home improvements or debt consolidation.
• Updating borrowers on the mortgage. Refinancing may allow you to remove or add a borrower following certain life changes, subject to qualification requirements.

If You Might Move Soon

If you're planning to sell your home in the near future, it's especially important to consider how long you'll keep the refinanced mortgage. Refinancing involves costs, and it may take time to recover those expenses through potential monthly savings. For example, if you expect to move within three years, compare the total costs and potential benefits of refinancing over that timeframe rather than assuming you'll keep the loan for its full term. You may also hear about no-closing-cost refinance options. These arrangements may allow certain closing costs to be covered through lender credits or incorporated into the loan balance, depending on the program. However, the costs aren't necessarily eliminated. You may receive a different interest rate or have a larger loan balance as a result. Reviewing multiple scenarios can help you understand which option makes sense for your plans.

What Does Refinancing Cost

A refinance has most of the same costs as your original purchase loan, minus the ones tied to the sale. Expect some mix of lender fees, an appraisal if one is required, title work and title insurance, recording fees, and prepaid interest, taxes, and insurance for the escrow account.

Total costs usually run a low single-digit percentage of the loan amount. The range is wide, though. It depends on your state, the loan size, the program, and whether you’re paying points. FHA and VA streamline refinances skip a lot of the process, sometimes even the appraisal and the income paperwork, so they cost less.

You don’t have to guess. Within three business days of your application, a lender has to give you a Loan Estimate. It’s a standard three-page form that every lender lays out the same way, with the rate, the payment, and every cost on it. Get one from more than one lender and put them side by side. It’s the most useful thing you can do, and the form is designed to make it easy.

Understanding Discount Points

Discount points are optional upfront charges that may allow you to obtain a different interest rate on your mortgage. One discount point generally equals 1% of the loan amount. 

For example, one point on a $300,000 mortgage would cost $3,000. Paying discount points may reduce your interest rate and monthly principal and interest payment. However, whether the upfront expense makes financial sense depends on the amount paid, the resulting savings, and how long you expect to keep the loan. 

Before deciding, consider requesting loan scenarios with and without discount points. Comparing the upfront costs, monthly payments, and total interest expenses can help you determine which option aligns with your financial goals.

Understanding Rate Locks

Mortgage interest rates can change throughout the loan process. A rate lock allows you to secure a specific interest rate for an agreed-upon period, provided the loan meets the lender's requirements. Rate locks commonly last between 30 and 60 days, although other timeframes may be available. Locking your rate can provide protection against potential rate increases while your refinance is being processed. However, if market rates change after you've locked, your options may depend on your lender's policies and the terms of your agreement.

Some lenders offer rate lock extensions or float-down options, which may involve additional costs or requirements. Before locking your rate, ask your loan officer about the lock period, expiration date, extension options, and any associated fees.

Refinancing With Imperfect Credit

Having less-than-perfect credit doesn't necessarily prevent you from refinancing. Lenders evaluate several factors when reviewing a refinance application, including your credit history, income, existing debts, home equity, and loan program requirements. Your credit score can influence the interest rates and loan options available to you, but different mortgage programs have different eligibility guidelines. 

For homeowners with existing FHA or VA loans, certain streamline refinance programs may offer simplified qualification requirements when applicable conditions are met. 

If you're concerned about your credit, consider speaking with a loan officer before applying. They can help you understand available options and whether taking additional time to improve your credit profile may be beneficial.  Learn what moves your credit score.

Choosing A Lender Beyond The Interest Rate

When comparing refinance options, it's important to look beyond the advertised interest rate.

Closing costs, discount points, loan terms, and lender fees can all affect the overall cost of your mortgage.

Compare Loan Estimates. Reviewing estimates for similar loan amounts, terms, and rate lock periods can help you better understand the differences between offers.

Ask About Communication. Understanding who will manage your loan and how you'll receive updates can help you feel more informed throughout the refinance process.

Review Your Available Options. Different lenders may offer different programs, pricing structures, and qualification requirements.

At Barrett Financial Group, we work with a network of lending partners to help borrowers explore mortgage options based on their individual needs and financial circumstances. Our loan originators can help you review available scenarios and understand the costs and benefits associated with each option.

Your Three-Day Right to Cancel

Know this before you sign. It doesn’t always get mentioned.

For certain refinance transactions involving your primary residence, federal law provides a right of rescission, which allows eligible borrowers to cancel the transaction within a specified period. 

In general, this right applies to certain loans secured by your principal dwelling, including many refinances with a new lender and home equity loans. The rescission period typically lasts until midnight of the third business day after the last of certain required events, including consummation of the loan, receipt of the required rescission notice, and receipt of required material disclosures. For purposes of this period, Saturdays generally count as business days, while Sundays and federal legal public holidays do not.

Not all mortgage transactions qualify for rescission. Purchase loans, loans secured by second homes or investment properties, and certain refinances with an existing creditor may be excluded or subject to different rules. If your loan includes a right of rescission, you'll receive a written notice explaining your rights and the applicable deadline. Review these documents carefully and contact your lender if you have questions about your cancellation rights.