Refinance FAQ

A refinance replaces your existing mortgage with a new one, usually at a different rate, term, or both. Technically you pay off the old loan with the proceeds of the new loan and start fresh on payments, closing costs, and everything that comes with it. The home, the taxes, and the insurance stay the same. Everything tied to the loan itself resets.

Yes, and this is one of the cleanest reasons to refinance. If you started with an FHA loan, mortgage insurance (MIP) is permanent on most loans originated after June 2013. Refinancing into a conventional loan once you have 20 percent equity drops the insurance entirely. On conventional loans, PMI drops off automatically at 78 percent LTV, but refinancing can get you there faster if home values have risen. Run the calculator with your new rate plus the monthly savings from dropping PMI and the break-even gets very short.

Usually yes. If your 5/1 or 7/1 ARM is hitting its reset date and the current fixed rate is near or below your ARM rate, refinancing into a 30-year or 15-year fixed locks in certainty. ARMs that reset in a rising-rate environment almost always end up higher after adjustment. The question is whether the fixed rate today is better than where your ARM is likely to land. If you do not know, fix it. Peace of mind is worth 0.125 percent.

No, cash-out proceeds are not income. You are borrowing against your own equity, not receiving earnings. What changes is deductibility. Under current IRS rules in Publication 936, interest on cash-out dollars is only deductible if you use them for home acquisition or substantial improvement. Cash-out for debt consolidation or lifestyle spending is not tax-deductible even though the loan itself is a mortgage. Consult a tax professional.

A recast keeps your existing loan but re-amortizes the payment after a lump-sum principal payment. If you put $50,000 toward principal and ask the lender to recast, the monthly payment drops to reflect the new balance over the remaining original term. No closing costs, no credit check, typically a $250 to $500 fee. A recast beats a refi when your current rate is already competitive and you have a lump sum. It does not change the rate, so if rates have dropped meaningfully, refinancing wins.

FHA Streamline and VA Interest Rate Reduction Refinance Loan (IRRRL) are government-backed refinance programs for borrowers already in FHA or VA loans. No appraisal required in most cases, reduced documentation, lower closing costs, and faster closing. The rule: the refi has to produce a "net tangible benefit", which usually means a rate drop of at least 0.5 percent or a switch from ARM to fixed. If you qualify, streamline refis are dramatically cheaper than standard refinances.

Depends on your break-even math. Rolling closing costs into the new loan means you pay interest on them for the life of the loan. On a $6,000 closing cost at 6 percent over 30 years, that is roughly $4,900 in additional interest. Paying upfront avoids that but requires the cash at closing. If the break-even is short enough either way (say, under 3 years), rolling in is fine. If break-even is already long, paying upfront keeps the math defensible.

Points are prepaid interest. One point costs 1 percent of the loan amount and typically lowers the rate by about 0.25 percent. Whether points win depends on how long you stay. On a $300,000 loan, one point is $3,000 and saves roughly $47 a month. Break-even on the points alone is about 64 months. Stay longer than that and points pay off. Sell or refinance again before, and you overpaid. Short stay horizons favor no-points. Long stays favor points.

Possibly. It is the most common refinance risk. If the appraiser values the home lower than you expected, your loan-to-value ratio rises, which can kill the refi or require PMI. Three defenses: pull recent comparable sales in your neighborhood (Zillow, Redfin, or your county assessor site), meet the appraiser at the property and point out improvements, and choose a lender that allows appraisal waivers on conforming loans with strong borrower profiles. Fannie Mae and Freddie Mac both grant waivers on qualifying refis.

Lenders calculate DTI as total monthly debt (mortgage, car loans, student loans, minimum credit card payments) divided by gross monthly income. Most conventional loans cap DTI at 43 to 50 percent. FHA allows up to 56.9 percent with compensating factors. If your DTI is borderline, pay down a credit card or two before applying. A $200 monthly minimum payment off a card can shift DTI enough to matter.

Not meaningfully if you do it inside a tight window. FICO and VantageScore treat multiple mortgage credit inquiries within 14 to 45 days as a single inquiry for scoring purposes (the exact window depends on the scoring model version). Get your three Loan Estimates within two weeks. The credit hit is the same as pulling one lender. Shopping is strictly advantageous. The CFPB and consumer reporting agencies have documented this for years.

If your property is in a condo or planned unit development, the lender will verify the HOA is in good standing (reserves, owner-occupancy ratio, insurance, pending litigation). A troubled HOA can block conventional financing, forcing you to FHA or a portfolio lender. Before applying, ask your HOA board for a current lender questionnaire. If anything looks wrong, resolve it before the appraisal triggers a formal HOA review.

Yes, but documentation is heavier. Most lenders require two years of tax returns, business and personal, plus profit-and-loss statements and sometimes bank statements. Bank statement loans (qualifying off business deposits instead of tax returns) exist for self-employed borrowers whose tax returns understate income. Rates on bank statement loans run 0.5 to 1 percent higher than conforming. Worth it if the income documentation is the blocker.

Typical timeline is 30 to 45 days from application to closing. FHA and VA streamline refis can close in 2 to 3 weeks. Jumbo loans often run 45 to 60 days. Rate locks are usually 30, 45, or 60 days, longer locks cost more. If the lender misses the lock expiration, you renegotiate. Ask the loan officer for a written timeline at application.

Standard package: last two W-2s, last two pay stubs, last two tax returns, last two months of bank statements, current mortgage statement, homeowners insurance declarations, and government ID. Self-employed add business returns. Investment property refis add rental income documentation. Have a PDF folder ready before you apply. The lenders who close fastest are the ones whose borrowers send complete files in 24 hours.