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How to Apply For a Mortgage Refinance

Refinancing your mortgage is a common way to lower your interest rate or tap some of the equity you have in your home. You can also use a refinance to shorten your loan term and reduce your payments, or get rid of private mortgage insurance (PMI).

To apply for a mortgage refinance, start by gathering all the information you need. Your credit score, income and debt-to-income ratio are crucial. Then, shop around for the best mortgage rates and terms available.

You can also refinance your mortgage with a cash-out transaction, which allows you to borrow against the value of your home and draw some of the extra money out as cash. These cash-out loans are especially popular with homeowners who want to pay off high-interest debt or improve their homes, but they can come with higher closing costs and refinance rates than other options.

Calculate your break-even point
Before you decide to refinance, it’s important to calculate how long it will take for the cost of your new mortgage to pay off compared to the savings from your lower monthly payments. This is referred to as your “break-even point” and is usually two to five years after you’ve refinanced.

Using a calculator can help you determine your break-even point and make the decision to refinance. Enter your current loan amount, the new loan amount you’ll receive, and the total cost of your refinance into MoneyGeek’s Refinance Calculator.

Then, click “Get Results.” The result is a chart that shows you how your break-even point compares to the savings from your new mortgage payment. The chart can help you decide if you’re better off refinancing and whether the savings are worth the cost of the refinance.

A good refinance lender will walk you through the process and answer any questions you may have. They will also provide you with the initial disclosures and a Loan Estimate that outlines the details of your loan.

Closing costs
Refinancing your mortgage comes with closing costs, which can be between 2 percent and 5 percent of the loan amount you’re refinancing. This expense can be significant, so it’s important to figure out how much you will need to save to recoup those costs and make the refinance financially worthwhile.

The best way to estimate your break-even point is by calculating the total of your refinance costs and subtracting the amount you will save with the new loan. Then, look at how long it will take you to recoup those costs and decide if the savings are worth it for you.

The longer it takes to recoup your refinance costs, the more likely it is that a refinance will make sense for you. You should also consider your financial health and how long you plan to stay in the home when deciding whether to refinance.

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