How to Refinance Your Mortgage: A Step-by-Step Guide
When refinancing makes sense and how to do it — break-even math, rate-and-term vs. cash-out, shopping lenders, and closing without leaving money on the table.
Refinancing replaces your mortgage with a new one — and pays new closing costs for the privilege. The math is simple; the discipline is doing it before you fall for a payment that looks lower only because the clock restarted. Ava, our financing expert, can run your numbers.
- 1
Run the break-even first
Divide total refi closing costs (typically 2–5% of the loan) by your monthly savings. That's how many months until you're actually ahead — if you might move before then, stop here.
- 2
Pick the right kind of refi
Rate-and-term changes your rate or length; cash-out borrows against equity at a slightly higher rate. Shortening the term (30 to 15) saves the most interest but raises the payment.
- 3
Watch the amortization reset
Five years into a 30-year loan, refinancing into a fresh 30 restarts the interest-heavy years. Compare total remaining interest, not just monthly payments — or refi into a 25- or 20-year term.
- 4
Shop three lenders in a two-week window
Grouped credit pulls count as one inquiry. Compare loan estimates line by line — APR and lender fees, not just the teaser rate. Your current lender will often match to keep you.
- 5
Lock and prepare like a purchase
Same underwriting as buying: income docs, appraisal, no new debt mid-process. Lock your rate for a window that comfortably covers closing.
- 6
Close and confirm the payoff
Verify the old loan is fully paid off, watch for the escrow refund from your old lender, and set up the new payment before the first due date.
Frequently asked
The old 'refinance when rates drop 1%' rule — still true?
It's a rough shortcut. The real test is break-even months versus how long you'll keep the loan. On large balances, even half a point can pay off quickly; on small ones, it may never.
Is a no-closing-cost refinance really free?
No — the costs move into a higher rate or onto the loan balance. It can still make sense if you'll move or refinance again soon; it's a trade of long-term cost for short-term cash.
Keep reading
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