Refinance Basics
Learn the core concepts, benefits and risks of refinancing your home loan in the United States.
Key takeaway
Refinancing can be a useful tool to improve your monthly payment or pay off your home faster, but it only makes sense if the long-term savings are greater than the total costs of getting the new loan.
What this guide covers
Refinancing a mortgage means replacing your current home loan with a new one, usually to lower your interest rate, reduce your monthly payment, shorten your term, or change the type of loan.
This guide will help you understand the key ideas so that you can have a better conversation with any lender or broker.
Key concepts
- Interest rate: the cost you pay to borrow money, expressed as a percentage.
- Loan term: how many years you will pay the loan (for example 15 or 30 years).
- Closing costs: fees that you pay when the new loan is created.
- Break-even point: how long it takes for your monthly savings to cover the closing costs.
When refinancing might make sense
- When interest rates are significantly lower than your current rate.
- When you want to move from an adjustable-rate to a fixed-rate mortgage.
- When you want to shorten the term of your loan to pay it off faster.
- When you want to remove a co-borrower from the loan and you qualify on your own.
Quick checklist
- Check your credit score and correct any obvious errors.
- Gather recent pay stubs, W-2s and tax returns so you are ready to apply.
- Compare offers from at least two or three lenders.
- Calculate your break-even point using closing costs and monthly savings.
- Make sure you understand if there are prepayment penalties on your current loan.
Important note
This guide is for educational purposes only. It is not legal, tax or personalized financial advice. Every situation is different, and you should always consult a qualified professional before making decisions about refinancing, debt consolidation or credit strategies.