How to Refinance a Home Loan

By refinancing your home loan when conditions are right, you could lower your monthly payments and save money overall. Over the life of your home loan, interest rates on home loans in your area can fluctuate - sometimes dropping lower than the rates on your existing loan.

Step 1 - Be Sure the Time Is Right

There are two good times to refinance your home loan.

  • If you have an adjusted-rate mortgage, and economic interest rates are rising, that means your interest on your mortgage rises as well. But if you refinance your mortgage to get a fixed-rate mortgage, your interest rates would stay the same, no matter what the economy does.
  • If you are able to find a mortgage with a lower interest rate, refinancing your mortgage would save you money by saving you these interest fees over the life of your mortgage.
A good rule of thumb is to wait until your new rate would be at least two percent lower than your old rate. This will ensure that the savings from your new rate would have paid back any refinancing costs within a couple of years.

Step 2 -Gather What you Need

The exact papers you need will vary depending on your lender. But in most cases, you will need an application from your lender, copies of tax records or current pay stubs, and information that will help assess your home's current value, such as copies of a floor plan or invoices for any home improvements you've made.

Step 3 - Applying for the Loan

Applying to refinance your home loan is very similar to applying for a first-time home loan. Be sure that you have filled out the application completely and have attached all the paperwork your lender requests; an incomplete loan application can delay your request.