How do you refinance your mortgage?

Refinancing a mortgage replaces your existing home loan with a new one â usually to lower your interest rate, reduce your monthly payment, shorten your loan term, or switch from an adjustable rate to a fixed rate. The process typically takes 30-60 days and has closing costs of 2-5% of the loan amount.

When you refinance a mortgage, a new lender pays off your existing home loan and replaces it with a new loan at terms you negotiate today. The home secures both loans; only the lender and loan terms change. Refinancing can make strong financial sense when rates have dropped, your credit has improved, or your financial goals have shifted â but closing costs of 2-5% of the loan amount mean you need to hold the loan long enough to recoup those costs through your lower monthly payment.

Common reasons to refinance

Rate-and-term refinance: lower your interest rate, shorten your term (e.g., 30-year to 15-year), or both. This is the most common type.
Cash-out refinance: borrow more than you owe and receive the difference as cash, tapping home equity for home improvements, debt payoff, or other needs. The new loan balance is larger than your current balance.
Adjustable-to-fixed switch: replace an ARM with a fixed-rate loan to lock in predictable payments before a rate adjustment period.
PMI removal: if your home has appreciated enough that a new appraisal shows 20%+ equity, refinancing into a new conventional loan eliminates PMI.
Remove a borrower: refinancing is one of the few ways to legally remove a co-borrower from a mortgage.

The refinance process, step by step

Start by calculating your break-even point: divide total closing costs by your monthly savings to find how many months it takes to recoup the upfront cost. If you plan to sell or move before then, refinancing likely doesn't pay off. Next, shop at least three lenders within a short window â FICO rate-shopping rules treat multiple mortgage inquiries within 45 days as a single inquiry. Each lender will issue a Loan Estimate within three business days. After selecting a lender, you'll submit documents (pay stubs, tax returns, bank statements), the lender will order an appraisal, underwriting will review everything, and you'll close with a new set of closing disclosures. The CFPB's refinance guide covers the full process and what to watch for.

Closing costs and the break-even calculation

Refinancing is not free. Closing costs typically run 2-5% of the loan amount â on a $300,000 loan, that's $6,000-$15,000. Some lenders offer 'no-closing-cost' refinances by rolling the costs into the loan balance or accepting a slightly higher rate. Both approaches defer rather than eliminate the cost. The CFPB's Loan Estimate explainer describes each line item so you can compare offers accurately across lenders.

What regulators say about mortgage refinancing

The CFPB advises borrowers to calculate the break-even point on a refinance â dividing closing costs by monthly savings â to determine whether the upfront cost makes financial sense given how long they plan to stay in the home. — CFPB
Lenders must provide a Loan Estimate within three business days of receiving a complete refinance application, disclosing the interest rate, projected monthly payment, and estimated closing costs. — CFPB
Multiple mortgage refinance inquiries within a 45-day window are generally counted as a single inquiry under FICO scoring rules, allowing consumers to shop lenders without compounding credit-score impact. — CFPB

Key takeaways

Refinancing replaces your existing mortgage with a new loan â same home, new terms and potentially a new lender.
Calculate your break-even point (closing costs Ã· monthly savings) before deciding â if you'll sell before break-even, it likely isn't worth it.
Shop at least three lenders and compare Loan Estimates side by side; FICO rules limit score impact from multiple inquiries within 45 days.
Closing costs of 2-5% of the loan amount are real; 'no-closing-cost' options defer rather than eliminate them.
Common goals: lower rate, shorter term, cash-out equity, remove PMI, or switch from ARM to fixed.