Fundamental Questions
What is refinancing?
Refinancing replaces your existing mortgage with a new one — different rate, different terms, or different loan type. The new loan pays off the old one at closing. You now have different monthly payments, different interest costs, and potentially different equity access.
When does refinancing make financial sense?
When the break-even period (closing costs ÷ monthly savings) is shorter than your expected remaining time in the home. As a guideline: break-even under 24 months is compelling; under 36 months is typically sound; over 60 months requires exceptional circumstances.
Break-even examples at various balances with 0.75% rate improvement
| Loan Balance | Rate Drop | Monthly Savings | Closing Costs | Break-Even |
|---|---|---|---|---|
| $250,000 | 0.75% | $154/mo | $6,000 | 39 months |
| $350,000 | 0.75% | $215/mo | $8,000 | 37 months |
| $500,000 | 0.75% | $308/mo | $10,000 | 32 months |
Process Questions
How long does a refinance take?
30–60 days from application to closing is typical. Jumbo loans, self-employed borrowers, and complex properties take longer (45–75 days). Having documents ready before applying compresses the timeline.
What documents do I need?
Standard requirements: 2 years tax returns, 2 years W-2s, 2 months pay stubs, 3 months bank statements, current mortgage statement, homeowners insurance declarations. Self-employed borrowers need business tax returns and profit/loss statements.
Financial Questions
What are typical refinance closing costs?
2–5% of loan amount. Lowest cost items you control: choosing competitive lenders. Highest variable: origination fees (0.5–2%), title insurance. Unavoidable: appraisal ($400–$700), recording fees, prepaid interest.
Should I roll closing costs into the loan?
Rolling in $10,000 at 6.3% over 30 years costs $12,700 in additional interest — you pay $22,700 total for 'free' closing costs. Paying out of pocket is financially superior if you have the cash. Roll in only if cash is genuinely unavailable.
Compare APRs between lenders, not just interest rates. The APR incorporates fees into a single number that enables true apples-to-apples comparison across different rate/fee structures. Always get and compare APRs before choosing a lender.
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