How much does it cost to refinance?

Typical closing costs are 2%–4% of the loan amount, including lender fees, title insurance, appraisal, and escrow. On many refinances you can roll closing costs into the loan or take a slightly higher rate in exchange for a lender credit.

When does refinancing make sense?

The classic rule of thumb is a 1% rate drop, but the right answer depends on how long you'll stay in the home. Calculate your break-even (closing costs ÷ monthly savings). If you'll stay longer than the break-even, the refinance pays for itself.

What's the difference between rate/term and cash-out refinance?

A rate/term refinance changes your interest rate and/or loan term without taking equity out. A cash-out refinance increases the loan balance and gives you the difference in cash. Cash-out rates are usually 0.25%–0.50% higher.

Can I refinance an FHA loan into a conventional loan?

Yes. This is one of the most powerful refinance moves — once you reach 20% equity, refinancing into conventional eliminates FHA's lifetime mortgage insurance. The savings often exceed the rate impact.

Refinance Loans

Refinancing replaces your current mortgage with a new one — to lower your rate, shorten your term, switch loan types, or pull cash out of your equity. The right refinance depends on your goal, not just current rates.

At a glance

Minimum down payment	N/A — based on existing equity
Minimum credit score	620 conventional; 580 FHA streamline; 620 VA IRRRL
Maximum loan amount	Same as the original purchase loan limits
Mortgage insurance	Required if loan-to-value exceeds 80% on conventional refinances; FHA MIP rules apply on FHA refis

Best for

Homeowners with rates more than 1% above current market rates
Borrowers who want to drop FHA mortgage insurance after building equity
Owners who want to shorten their loan term (30 → 15 years)
Borrowers consolidating high-interest debt with a cash-out refinance
Veterans using a VA Interest Rate Reduction Refinance Loan (IRRRL)

Eligibility requirements

Sufficient equity for the refinance type (5%–20% depending on program)
Credit score per program (see purchase requirements)
Documented income and employment history
Property appraisal (waived on some streamline programs)
Current mortgage typically must be 6+ months seasoned

Pros

Lower monthly payment with a lower rate
Build equity faster with a shorter term
Eliminate FHA MIP by refinancing into a conventional loan at 80% LTV
Cash-out refinance can fund renovations, debt payoff, or investment
VA and FHA streamline programs offer minimal documentation

Cons

Closing costs of 2%–4% of the loan amount
Resets the amortization clock unless you choose a shorter term
Cash-out refinances typically have a higher rate than rate/term refis
Break-even on closing costs may take 2–4 years

Documents you'll need

Two most recent pay stubs
Two years of W-2s and tax returns
Two months of bank statements
Most recent mortgage statement
Current homeowners insurance declaration page
Property tax bill

How to think about refinancing

Don’t refinance because rates dropped — refinance because the math on your specific situation works. Calculate the break-even, project how long you’ll stay, and decide.

The two most overlooked refinance moves: dropping FHA mortgage insurance once you hit 20% equity (often saves $200+/month even at the same rate), and shortening from a 30-year to a 15-year term (huge interest savings if the payment fits your budget).

Frequently asked questions

How much does it cost to refinance?: Typical closing costs are 2%–4% of the loan amount, including lender fees, title insurance, appraisal, and escrow. On many refinances you can roll closing costs into the loan or take a slightly higher rate in exchange for a lender credit.
When does refinancing make sense?: The classic rule of thumb is a 1% rate drop, but the right answer depends on how long you'll stay in the home. Calculate your break-even (closing costs ÷ monthly savings). If you'll stay longer than the break-even, the refinance pays for itself.
What's the difference between rate/term and cash-out refinance?: A rate/term refinance changes your interest rate and/or loan term without taking equity out. A cash-out refinance increases the loan balance and gives you the difference in cash. Cash-out rates are usually 0.25%–0.50% higher.
Can I refinance an FHA loan into a conventional loan?: Yes. This is one of the most powerful refinance moves — once you reach 20% equity, refinancing into conventional eliminates FHA's lifetime mortgage insurance. The savings often exceed the rate impact.

Related loan programs

Conventional Loans — Conventional loans aren't backed by a government agency, follow Fannie Mae and Freddie Mac guidelines, and reward strong credit with the lowest rates and most flexible terms available.
FHA Loans — FHA loans are insured by the Federal Housing Administration and let you buy with as little as 3.5% down and a 580 credit score, making them a top choice for first-time buyers and credit rebuilders.
VA Loans — VA loans are guaranteed by the Department of Veterans Affairs and let eligible veterans, active-duty service members, and surviving spouses buy with zero down payment and no monthly mortgage insurance.
HELOC — A Home Equity Line of Credit (HELOC) is a revolving credit line secured by your home's equity. You draw funds as needed during the draw period and repay flexibly — like a credit card backed by your house.