Refinancing, explained
Whether you want a lower rate or access to equity, here's what to know before you refinance.
Contact iTrustTypes of refinancing
Rate-and-term refinance
Replace your current mortgage with a new one to get a lower interest rate, change your loan term, or both — without changing your loan balance beyond closing costs.
Cash-out refinance
Replace your mortgage with a larger loan and receive the difference in cash, using some of the equity you've built in your home.
Understanding your break-even point
Your break-even point is the point at which your monthly savings from refinancing outweigh the closing costs you paid to get the new loan. A simple way to estimate it:
Break-even (months) = Total closing costs ÷ Monthly payment savings
For example, if refinancing costs $4,000 in closing costs and saves you $150 per month, your break-even point is roughly 27 months. If you plan to stay in your home longer than that, refinancing may be worth it.
Frequently asked questions
What's the difference between rate-and-term and cash-out refinancing?
A rate-and-term refinance replaces your existing mortgage with a new one to change your interest rate, loan term, or both, without changing your loan balance beyond closing costs. A cash-out refinance replaces your mortgage with a larger loan, letting you access some of your home's equity as cash.
How do I calculate my refinance break-even point?
Divide your total closing costs by your estimated monthly savings from the new loan. The result is roughly how many months it will take for the savings to outweigh the cost of refinancing — a useful benchmark if you know how long you plan to stay in the home.
Is there a minimum amount of equity needed to refinance?
Equity requirements vary by loan program and refinance type. Cash-out refinances typically require more remaining equity than rate-and-term refinances. A loan officer can walk through what's realistic for your specific situation.
Will refinancing reset my loan term?
It can, depending on the term you choose for your new loan. Some borrowers refinance into a new 30-year term to lower monthly payments, while others choose a shorter term (like 15 years) to pay off the home faster, sometimes at a lower rate.
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