Refinancing

A refinance is a new loan, not an edit to the old one. You apply, the lender checks your credit, income and the home’s value, and you receive a Loan Estimate within three business days. At closing, the new lender pays off your old Mortgage, and you start a fresh Amortization schedule at the new rate and term.

Closing costs come back too: lender fees, any points, an appraisal, title work and recording charges. You can pay them in cash, roll them into the new balance, or accept a higher rate in exchange for lender credits. Each choice changes the math. Rolled-in costs collect interest for years, and lender credits raise the rate for the life of the loan.

Federal law adds one protection that a purchase loan lacks. When you refinance a loan on your principal dwelling with a new lender, you can cancel until midnight of the third business day after closing, delivery of the rescission notice or delivery of all material disclosures, whichever comes last. A refinance with your current lender carries that right only for new money borrowed beyond the old balance and the refinancing costs.

Most mortgage refinances fall into the groups in the table below. A rate-and-term refinance replaces the loan with one at a new rate, a new term or both, without taking out equity; it is the usual move when market rates fall or your credit improves. A cash-out refinance borrows more than you owe and pays you the difference, turning home equity into cash. If your current rate is low, a HELOC or home equity loan can tap that equity without replacing the first mortgage.

Streamline programs let borrowers who already have a government-backed loan refinance it with less paperwork. The VA’s Interest Rate Reduction Refinance Loan (IRRRL) is open only to borrowers who already have a VA-backed loan, are refinancing that loan, and can certify that they live or used to live in the home. The VA’s cash-out loan can also move a non-VA loan into a VA-backed one.

Other debts can be refinanced too. A new auto or personal loan can replace a higher-rate one, and the same break-even test applies. Federal student loans are different: the CFPB warns that refinancing them with a private lender gives up federal options such as income-driven repayment, forgiveness programs and discharge on death or disability, and a variable rate can rise above the old fixed one.

The quick test is the break-even point: divide the total cost of refinancing by the monthly saving. If you expect to keep the loan well past that month, the refinance at least pays for itself.

The break-even test is necessary but not sufficient. A lower payment can hide a higher lifetime cost, because a new 30-year loan restarts the clock. In the example below, the monthly saving covers $6,000 of closing costs in about 18 months, yet over the full new term it saves only about $21,750 after costs, because the debt now runs three years longer. Paying the new loan at the level that clears it in the 27 years left on the old one saves more than three times as much after closing costs.

Three more checks help. Compare the APR on competing offers, since points and fees differ. Read the old loan for a prepayment penalty; on mortgages covered by the federal ability-to-repay rule, a penalty can’t apply after the third year. And if you plan to sell within a few years, the savings may never catch up with the costs.

Rates moved up in September 2026. Freddie Mac’s Primary Mortgage Market Survey put the average 30-year fixed rate at 6.95% for the week of September 17, up from 6.76% a week earlier and 6.26% a year before. The 15-year average was 6.26%, against 5.41% a year earlier. Borrowers who locked a rate near last year’s lower averages are unlikely to beat it now, while loans taken at higher rates in earlier years may still pass the break-even test. Averages are only a guide; your quote depends on credit, equity, points and loan type.

Loan size and qualifying matter too. A new loan above the 2026 conforming limit of $832,750 in most areas, or $1,249,125 in high-cost areas, is a jumbo loan with its own pricing. Your debt-to-income ratio and credit score are checked from scratch, so a job change or a new car loan since you bought can change what you qualify for. If the home has gained value, a new conventional loan at 80% or less of its value typically avoids private mortgage insurance.

Borrowing against your home isn’t taxable income, so cash from a refinance isn’t taxed when you receive it. What changes is how your mortgage deductions work if you itemize rather than take the standard deduction. IRS Publication 936 sets the rules, and they differ from a purchase loan’s in ways that catch many borrowers out, especially around points and cash-out money. The $750,000 limit on home acquisition debt, made permanent by the 2025 tax law, applies to the new loan just as it did to the old one. The main differences: