Quick answer
Refinancing replaces your current mortgage with a new loan — to get a lower rate, change the term, drop mortgage insurance or take cash out. Closing costs typically run 3%–6% of the loan, according to Freddie Mac, so divide them by the monthly saving to find your break-even point. On a $250,000 balance, a rate one point lower at the same term saves about $168 a month and pays back $7,500 of costs in 3 years 9 months.
Key facts
12months
Loan age needed for a conventional cash-out
Fannie Mae Selling Guide B2-1.3-03 · Dec 10, 2025
210days
FHA Streamline waiting period
FDIC Affordable Mortgage Lending Guide (summary of HUD Handbook 4000.1) · Oct 28, 2026
How refinancing works
When you refinance, a lender pays off your existing mortgage with a new loan secured by the same home. You go through much of the purchase process again — application, Loan Estimate, underwriting, often an appraisal, closing — and you start a new loan with its own rate, term and costs. Your old loan disappears; nothing about it carries over except the balance you owed.
People refinance for four reasons:
- A lower rate — the most common. A lower rate cuts the payment and the total interest.
- A different term — shortening from 30 years to 15 or 20 pays the loan off faster; lengthening lowers the payment but costs more interest.
- Dropping mortgage insurance — usually moving from an FHA loan to a conventional one once you have enough equity.
- Taking cash out — borrowing more than you owe and receiving the difference.
Types of refinance
| Type | What it does | Key limits |
|---|---|---|
| Rate-and-term | New rate or term for about the same balance | Conventional: up to 97% of value; cash back no more than the greater of 1% of the loan or $2,000 |
| Cash-out | Larger loan; you receive the difference | Conventional and FHA: up to 80% of value on a one-unit home; VA allows up to 100% |
| FHA Streamline | FHA to FHA with less paperwork | 6 payments and 210 days since closing; no more than $500 cash back |
| VA IRRRL | VA to VA rate reduction | Fixed to fixed must cut the rate by at least 0.5%; costs recouped within 36 months |
A cash-out refinance resets the rate on your whole balance, not just the cash you take. If today’s rate is higher than your current one, a home equity line of credit or home equity loan may cost less — see cash-out refinance vs HELOC.
How big a rate drop do you need?
There is no universal rule, because the answer depends on your costs and how long you’ll keep the loan. The table keeps everything else fixed so you can see how the drop alone changes the result.
$250,000 balance with 27 years left, new loan for the same 27 years at today’s average of 7.24%, $7,500 of costs (3%) paid in cash
| Rate drop | Current → new rate | Monthly saving | Simple break-even | Ahead or behind after 5 years |
|---|---|---|---|---|
| 0.5 points | 7.74% → 7.24% | $83 | 7 years 7 months | −$1,212 |
| 0.75 points | 7.99% → 7.24% | $125 | 5 years | +$1,938 |
| 1 point | 8.24% → 7.24% | $168 | 3 years 9 months | +$5,091 |
| 1.5 points | 8.74% → 7.24% | $254 | 2 years 6 months | +$11,407 |
“Ahead or behind” counts payments made plus the balance still owed on each loan, plus the costs. Current rates are examples set above this week’s average.
The term matters as much as the rate. With the same one-point drop, stretching the 27 remaining years into a new 30-year loan lowers the payment by $223 instead of $168 — but most of the extra saving comes from spreading the debt over more years. Compare that case on a full basis with the refinance break-even calculator, and read the break-even point explained.
Open calculatorWhat refinancing costs
Freddie Mac puts typical refinance costs at 3% to 6% of the loan principal. They include the lender’s origination charges, the appraisal, the lender’s title policy, settlement and recording fees and any discount points. You don’t pay a down payment or a real estate transfer tax, and you normally don’t buy a new owner’s title policy. Prepaid interest and a new escrow deposit appear on the Closing Disclosure too, but your old escrow balance is refunded after the payoff.
You can pay the costs in cash, add them to the loan or accept a slightly higher rate in exchange for a lender credit. A no-closing-cost refinance uses the last two — the costs don’t disappear, they move into the rate or the balance. Refinance closing costs goes through the Loan Estimate line by line.
Refinance requirements
Lenders look at the same things as for a purchase — credit, income, debts and the home’s value — with rules that depend on the loan type:
| Conventional | FHA | VA | |
|---|---|---|---|
| Rate-and-term, highest loan-to-value | 97% | Streamline: no new appraisal needed in many cases | IRRRL: replaces the existing VA loan; no cash back from equity |
| Cash-out, highest loan-to-value | 80% (one unit) | 80% | 100%; lenders may set less |
| Waiting period | Cash-out: existing loan at least 12 months old | Streamline: 6 payments and 210 days | IRRRL: 6 payments and 210 days |
| Debt-to-income | Up to 50% through Fannie Mae’s automated system | Streamline: often no income check | IRRRL: often no income check |
Second homes, investment properties and two- to four-unit homes have lower cash-out limits — 75% on a second home under Fannie Mae’s matrix. Refinance requirements covers credit, documents and appraisals in detail.
Refinancing to drop mortgage insurance
On a conventional loan you rarely need to refinance to remove PMI: you can ask your servicer to cancel it once the balance reaches 80% of the home’s original value, and it ends automatically at 78%. Fannie Mae also allows cancellation based on today’s value after 2 years, at 75% loan-to-value for loans two to five years old.
FHA is different. When the starting loan-to-value was above 90%, annual MIP lasts for the life of the loan, so refinancing into a conventional loan with at least 20% equity is the usual way out. Whether it pays depends on the MIP you drop versus the closing costs and the new rate — see refinancing to remove PMI or MIP.
When not to refinance
- You expect to move or refinance again before the break-even point. Every month before it leaves you behind.
- Most of the saving comes from a longer term. Restarting a 30-year clock lowers the payment but can raise total interest.
- Your loan has a prepayment penalty. On Qualified Mortgages it is limited to 2% of the amount prepaid in the first two years and 1% in the third, and none after 3 years — but it still adds to the cost.
- The loan is nearly paid off. Late in a loan most of each payment is principal, so a lower rate saves little.
- Your credit or your home’s value has slipped. A lower score or less equity can mean a worse rate or mortgage insurance on the new loan.
When not to refinance puts numbers on each case.
How to refinance, step by step
Set your goal
Lower payment, shorter term, no mortgage insurance or cash out. The goal decides the loan type and term.
Check your numbers
Your balance, current rate, years left, an estimate of the home’s value and your credit score.
Request Loan Estimates from several lenders
On the same day, for the same loan type and term. Credit checks for a mortgage within 45 days count as a single inquiry on most scores.
Run the break-even
Divide section D costs plus any points by the monthly saving, and compare with how long you’ll keep the loan.
Lock the rate and apply
Send documents promptly; an appraisal may be ordered.
Review the Closing Disclosure and close
Compare it with the Loan Estimate. With a new lender, the 3 business days you have to cancel start after signing.
All refinancing guides
Frequently asked questions
When is it worth refinancing a mortgage?
When the monthly saving repays the closing costs before you expect to sell or refinance again, without relying on a much longer term. On a $250,000 balance with 27 years left, a one-point lower rate at the same term pays back $7,500 of costs in about 3 years 9 months.
How much does it cost to refinance?
Typically 3% to 6% of the loan principal, according to Freddie Mac. Your Loan Estimate lists the exact charges; compare several lenders on the same day.
How soon can I refinance after buying?
It depends on the loan. A conventional cash-out refinance needs the existing loan to be at least 12 months old. FHA Streamlines and VA IRRRLs need 6 payments and about 210 days. A conventional rate-and-term refinance has no fixed waiting period, though lenders may set one.
How much equity do I need to refinance?
For a conventional rate-and-term refinance, Fannie Mae allows up to 97% of the home’s value on a one-unit primary home. For cash out, the limit is 80% on conventional and FHA loans; VA allows up to 100%.
Does refinancing hurt your credit?
The lender’s credit check can lower your score slightly, and a new account changes your credit age. Rate-shopping inquiries within 45 days are counted as one on most scoring models.
Can I refinance with the same lender?
Yes, and it can save time, but compare offers from other lenders too. A same-lender refinance with no new money doesn’t carry the federal right to cancel after signing.
What is a no-closing-cost refinance?
A refinance where the lender covers your costs in exchange for a higher rate, or adds them to the loan. You still pay — through the rate or the balance — so compare it with paying the costs in cash over the years you’ll keep the loan.
Sources
- Freddie Mac Primary Mortgage Market Survey — 30-year fixed rate, national weekly average (Week of Oct 29, 2026)
- Freddie Mac My Home — Typical refinance closing costs, low end (share of loan principal); Typical refinance closing costs, high end (share of loan principal) (Oct 28, 2026)
- Fannie Mae Eligibility Matrix — Fannie Mae limited cash-out refinance maximum LTV, one-unit principal residence (fixed rate); Fannie Mae cash-out refinance maximum LTV, one-unit principal residence; Fannie Mae cash-out refinance maximum LTV, second home (Apr 1, 2026)
- Fannie Mae Selling Guide B2-1.3-02 — Fannie Mae limited cash-out refinance: cash back up to the greater of this share of the loan; Fannie Mae limited cash-out refinance: cash back up to the greater of 1% or (Oct 8, 2025)
- 38 CFR 36.4306 — VA refinance (including cash-out) maximum loan-to-value allowed by VA (Oct 22, 2026)
- FDIC Affordable Mortgage Lending Guide (summary of HUD Handbook 4000.1) — FHA Streamline: monthly payments already made; FHA Streamline: days that must pass since the current loan closed (Oct 28, 2026)
- HUD: Streamline Refinance — FHA Streamline: most cash a borrower can take out (Oct 28, 2026)
- 38 U.S.C. 3709 — VA IRRRL fixed-to-fixed: new rate at least this much lower; VA IRRRL: fees and closing costs must be recouped within; VA IRRRL seasoning: consecutive monthly payments made (Oct 28, 2026)
- CFPB — Right to cancel a refinance or home equity loan on your principal home (Aug 8, 2024)
- 12 CFR 1026.15(a)(3) and 1026.23(a)(3) — Right to cancel lasts up to this long if the required notice or disclosures were not given (Oct 28, 2026)
- HUD Mortgagee Letter 2019-11 — FHA cash-out refinance maximum loan-to-value (Aug 1, 2019)
- Fannie Mae Selling Guide B2-1.3-03 — Fannie Mae cash-out: existing first mortgage must be at least (Dec 10, 2025)
- Fannie Mae Selling Guide B3-6-02 — Fannie Mae maximum DTI, Desktop Underwriter loans (Apr 2, 2025)
- CFPB — Ask your servicer to cancel PMI at this share of original value; PMI ends automatically at this share of original value (Oct 28, 2026)
- Fannie Mae Servicing Guide B-8.1-04 — Fannie Mae: PMI cancellation on current value needs the loan to be at least; Fannie Mae: PMI cancellation on current value, loan two to five years old, LTV at or below (May 15, 2019)
- HUD Mortgagee Letter 2023-05 — FHA annual MIP ends after 11 years when the starting LTV is at or below (Feb 22, 2023)
- 12 CFR 1026.43(g) — Maximum prepayment penalty in the first two years (share of balance prepaid); Maximum prepayment penalty in the third year (share of balance prepaid); Prepayment penalty may not apply after this many years (qualified mortgages) (Oct 28, 2026)
- CFPB — Mortgage credit checks within this window count as one inquiry (Aug 28, 2026)
- CFPB: Is there such a thing as a no-cost loan or refinancing?
Last reviewed Figures are checked against the sources above. Read our editorial policy. This page is general information, not financial advice — see the disclaimer.