Refinancing

Refinancing is taking out a new mortgage to replace your current one. The most common reasons are: rate-and-term refinancing (getting a lower interest rate or different term without changing the loan amount), and cash-out refinancing (borrowing more than you owe and receiving the difference in cash).

The general rule for rate refinancing is that it makes sense when you can reduce your rate by at least 0.5-0.75% and plan to stay in the home long enough to recoup closing costs. Closing costs for a refinance typically run 2-5% of the loan amount, so you need to calculate the break-even point — how many months of savings it takes to offset the costs.

Cash-out refinancing lets you tap home equity for large expenses — home improvements, debt consolidation, or investments. However, you're increasing your mortgage balance and potentially extending your payoff timeline. Using home equity to pay off credit card debt only makes sense if you've addressed the spending habits that created the debt.

The refinancing process is similar to getting an original mortgage: application, credit check, appraisal, underwriting, and closing. It typically takes 30-45 days and costs $2,000-$10,000 depending on loan size and location. Some lenders offer "no-closing-cost" refinances that roll fees into a slightly higher interest rate.

Timing refinances around interest rate cycles can save substantial money. Rates dropped to historic lows in 2020-2021, triggering a massive refinancing wave. Monitoring rate trends and being ready to act when rates drop can save tens of thousands over a mortgage's lifetime.