How to Refinance a House

Learning how to refinance your home can help you pay off your mortgage sooner and even access extra cash through your equity. Especially if interest rates are low or your credit and financial status has improved since your original mortgage, you can take the opportunity to refinance to decrease your monthly mortgage payments and save on interest charges.

Still, the mortgage refinancing process can be complex. It’s important to understand how to refinance your loan — including steps to apply — so you can reap the benefits and meet your financial goals.

What is a mortgage refinance?

Mortgage refinancing is the process of replacing your original mortgage with a new mortgage featuring more favorable terms or rates. You’re essentially replacing your initial mortgage with a new one, giving you an opportunity to lower your interest rate and reduce or lengthen the term length. If you’ve built equity in your home, you may also be able to take cash out during the refinancing process.

Use mortgage refinance calculator from Discover® to see how you can lower your monthly payments by refinancing your home mortgage.

How to refinance your home

Since refinancing involves creating a new mortgage, you’ll have to go through the application and closing processes again.

You can use these steps to understand how to refinance a home:

Application

Easily apply for your mortgage refinance online or over the phone. During this process, you may be asked to provide:

• Personal information like your address, social security number, and employment status
• Property information like your home’s estimated value and mortgage balance
• Monthly or annual income

Approval

After the application process, you may be pre-approved for mortgage refinancing. At this time, you’ll work with your lender to decide on terms, including your interest rate, repayment term, and any equity you’d like to access.

Underwriting

After pre-qualification, your lender will request documents to help underwrite your new loan, including:

• Government-issued ID
• Tax returns
• Proof of income
• W2s, 1099s, or pay stubs
• Bank statements
• Current mortgage paperwork

The lender’s underwriter will ensure that your financial capabilities match the needs of the refinanced mortgage.

Appraisal

Your lender may choose to assess the value of your home either by using an automated valuation using current market information or by scheduling an in-person appraisal by a professional appraiser.

Appraisal fees for your refinance may apply, but Discover covers the costs of appraisal if you are applying for a cash-out refinance.

Closing

After your loan is processed, you will close on your new mortgage by signing your documents. Depending on your lender and terms, you may also have to pay closing costs at this time. Discover, for example, requires zero costs at closing — no application, origination, or appraisal fees.

When to refinance your home

Many lenders require you to wait at least six months from starting your original mortgage before you refinance. So once you’ve made six monthly payments on your home, you can start looking at refinancing options.

Beyond that, the best times to refinance your home are:

• When you can lower your interest rate. If market interest rates are notably lower than the rate you’re paying now, you can refinance your mortgage with a new, more affordable rate.
• When you have improved your credit or income. If your credit profile or your income have improved since you earned your original mortgage, a refinance may allow you to take advantage by earning lower interest rates against your mortgage balance.
• When you can shorten your loan term. If you’re able to shorten your loan term from a 30-year mortgage to a 15-year mortgage, you can pay off your home more quickly and pay less interest over the lifespan of your loan. Of course, this will likely increase your monthly mortgage payments, but the savings across the loan can make this an appealing option for refinancers.
• When your equity has increased. If you’ve built equity in your home, you can take out a lump sum of cash during the refinancing process – even if the length and rates of your refinance mortgage remain the same.

Benefits of a mortgage refinance

Refinancing your mortgage comes with many potential benefits, including:

Lower monthly payments

If you can lock in a lower interest rate while refinancing, you can lower your monthly payments. Over the 10-, 15-, 20- or 30-year lifetime of your loan, those monthly savings can add up to a significant amount of money.

Use home equity loan calculator from Discover to see if a refinanced mortgage can help you find a monthly payment that fits your budget.

Pay off your mortgage early

If your original mortgage has a 30-year repayment term, you can refinance to a 15-year term, helping you pay off your mortgage earlier. Of course, your monthly payments may increase, but you’ll save money by paying less interest in the long run.

Consolidate debt

If you have equity in your home, you may be able to access it and use that extra cash to pay off outstanding high-interest debts, like credit card debt, car loans or student loans. This option will also help you streamline your finances, so you can make one consolidated loan payment each month instead of several payments spread across accounts.

Receive extra funds

Speaking of home equity, you can also tap into those funds and put them towards other expenses, like home renovations. This is done through a process called cash-out refinancing. With a cash-out refinance, you rework your existing mortgage and pull out a lump sum of your equity at the same time. You then pay that new loan back in monthly installments, just like with your original mortgage.

Use cash-out refinance calculator from Discover to see how much cash you can get out of your home.