Loan options

Mortgage Refinance

A mortgage refinance replaces your current home loan with a new one, ideally with a lower rate, a shorter term, a different loan type, or some combination of the three. Your old loan is paid off at closing and you start making payments on the new one. It’s the same underwriting process as a purchase loan, minus the house hunting.

How a refinance works

When you refinance, a lender underwrites you the same way they would for a purchase: credit, income, assets, and (usually) a new appraisal of your home. At closing, the new loan pays off the old one, and any closing costs are either paid out of pocket, rolled into the new balance, or offset with a lender credit.

There are two broad flavors:

• Rate-and-term refinance: you change the interest rate, the loan term, or the loan type, but you don’t take meaningful cash out. This is what most people mean by “refinancing.”
• Cash-out refinance: you borrow more than you owe and take the difference in cash at closing. That’s a different product with different limits, covered on our cash-out refinance page.

Government-backed loans add a third path: streamline refinances. If you already have an FHA or VA loan, the FHA Streamline and VA IRRRL programs typically skip the appraisal and use reduced documentation, provided the refinance produces a clear benefit like a lower payment.

Common reasons people refinance

1. Lower the rate or payment. The most common motivation. Even a modest rate reduction can matter on a large balance. Run the numbers in our mortgage calculator suite to see the effect on your actual loan.
2. Shorten the term. Moving from a 30-year to a 20- or 15-year loan usually raises the monthly payment but can cut total interest dramatically.
3. Drop mortgage insurance. If you bought with an FHA loan or with less than 20% down, refinancing into a conventional loan once you have enough equity can remove monthly mortgage insurance.
4. Switch from an ARM to a fixed rate. Trading an adjustable rate for a fixed one buys payment certainty for as long as you keep the loan.
5. Remove a borrower. After a divorce or a co-signer arrangement ends, a refinance is the standard way to take someone off the loan.

Who qualifies

Requirements vary by program, but as a general guide:

• Credit score: typically 620+ for conventional, and often 580+ for FHA. Streamline programs can be more flexible.
• Equity: conventional rate-and-term refinances typically allow up to 95%–97% loan-to-value; FHA and VA streamlines often don’t require an appraisal at all.
• Debt-to-income ratio: typically up to 43%–50% depending on the program and compensating factors.
• Payment history: most programs want to see recent, on-time mortgage payments, usually no 30-day lates in the last 6 to 12 months.
• Seasoning: some programs require you to have had the current loan for a minimum period (often around 6 to 7 months) before refinancing.

None of these are promises of approval (every file is underwritten individually), but they’re the benchmarks underwriters start from.

What it costs

Refinance closing costs typically run 2% to 5% of the loan amount. That covers the appraisal, title insurance, recording fees, lender fees, and prepaid items like escrow deposits. Three ways to handle them:

• Pay at closing: cheapest over the life of the loan.
• Roll into the balance: nothing due at closing, but you pay interest on the costs for the life of the loan.
• Lender credit: accept a somewhat higher rate in exchange for the lender covering some or all costs. Useful if you may not keep the loan long.

The key discipline is the break-even calculation: closing costs divided by monthly savings equals the number of months until the refinance pays for itself. If you might sell or refinance again before that point, think twice.

Pros and cons

Pros

• Can lower your monthly payment or total interest cost
• Can shorten your payoff date
• Can remove mortgage insurance or an adjustable rate
• Streamline options exist with minimal documentation for FHA/VA borrowers

Cons

• Closing costs are real money (2%–5% of the loan), whether paid up front or financed
• Restarting a 30-year term can increase lifetime interest even at a lower rate
• Requires full underwriting on most programs: paperwork, an appraisal, and a 30–45 day process
• If you refinance frequently, the fees can eat the savings

Refinance vs. the alternatives

• Cash-out refinance: choose this instead if your main goal is pulling equity out as cash, not improving the loan terms. It typically caps at 80% loan-to-value and prices slightly higher than a rate-and-term refinance.
• HELOC: if your current first mortgage already has a great rate and you just need access to funds, a home equity line lets you borrow against equity without touching that first mortgage.
• Recasting: if you only want a lower payment and have a lump sum available, some servicers will re-amortize your existing loan after a large principal payment, for a small fee and with no underwriting. Ask before assuming a refinance is the only tool.

How to get started with Priority Home Mortgage

Priority Home Mortgage underwrites refinances in-house, which matters most here, where the whole point is the math: the break-even numbers we show you are the ones our own underwriting stands behind. Start with a quick quote: tell us your current balance, rate, and goal, and we’ll show you real break-even numbers, not a sales pitch. If the math doesn’t work, we’ll tell you that too.

Mortgage Refinance: your questions, answered

When does refinancing actually make sense?

The classic test is break-even: divide your closing costs by your monthly savings to see how many months it takes to come out ahead. If you'll stay in the home well past that point, a refinance is worth a serious look. It can also make sense to shorten your term, drop mortgage insurance, or move from an adjustable rate to a fixed one even if the monthly payment barely changes.

How much does it cost to refinance a mortgage?

Plan on roughly 2% to 5% of the loan amount in closing costs, covering the appraisal, title work, lender fees, and prepaid escrow items. Some borrowers roll those costs into the new loan balance or take a slightly higher rate in exchange for a lender credit. Neither approach makes the cost disappear; it just changes how you pay it.

Does refinancing restart my 30-year clock?

Only if you choose a new 30-year term. You can refinance into a 25-, 20-, or 15-year loan instead, or ask for an amortization matched to the years you have left. Restarting at 30 years lowers the payment but can increase total interest paid, so it's worth comparing both ways.

Will refinancing hurt my credit score?

The credit pull and the new account typically cause a small, temporary dip of a few points. Rate shopping with multiple lenders within a short window generally counts as a single inquiry for scoring purposes. Making the new payment on time usually restores and then improves your score within a few months.

Can I refinance if my home has lost value or I have little equity?

Often, yes. FHA and VA streamline refinances typically don't require a new appraisal, and conventional rate-and-term refinances can go to high loan-to-value ratios. The right path depends on your current loan type, so it's worth having a lender check your options before assuming you're stuck.

How long does a refinance take to close?

Most refinances close in roughly 30 to 45 days, and streamline programs can be faster. The timeline mostly depends on how quickly the appraisal comes back and how fast you return requested documents. You'll also get a 3-day right of rescission after closing on a primary residence before the loan funds.