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.

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 loan

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.

Down payment: N/A — based on existing equity
Credit score: 620 conventional; 580 FHA streamline; 620 VA IRRRL
Loan amount: Same as the original purchase loan limits
MI: 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 to 15 years)
Borrowers consolidating high-interest debt with a cash-out refinance
Veterans using a VA Interest Rate Reduction Refinance Loan (IRRRL)

Eligibility

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

+

The upside

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

−

Worth considering

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 are 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).

Common 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.
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.