How to Refinance a Mortgage

by High Yield Savings Accounts

Many people consider refinancing their mortgage in order to reduce their monthly payment, save money on interest, or to take some money from the equity of the home to do home repairs or consolidate other debts. But do you know how to refinance a mortgage? Before jumping in, let;s look at a couple considerations, including the fact that refinancing is not always a good idea, and there are a variety of aspects to consider before you try to refinance your mortgage.

Good Reasons to Refinance Your Mortgage

You don’t want to refinance the mortgage if it’s going to cost you more money over the long run.  Common reasons to refinance:

  • to switch from an adjustable rate mortgage to a fixed rate mortgage,  if the interest rates are predicted to increase. If you are overseas, you may have a standard variable rate mortgage.
  • to lower your interest rate, if the rates were higher when you first took out the mortgage than they are now; or if your credit is better and would enable you to obtain a lower interest rate than you currently have
  • to consolidate debts or to use the equity in your house to pay college expenses, living expenses if laid off, or make home repairs

Does Refinancing Your Mortgage Make Sense?

Sometimes it doesn’t make sense financially to refinance your mortgage.  There are costs involved with a refinance including fees for getting the new loan, potential closing costs again, and sometimes penalties for paying off the original mortgage earlier than planned.

If you may move from your home before you’ve experienced savings in your new monthly mortgage payments to recover the costs of the fees associated with refinancing, it doesn’t make sense to refinance.

If you refinance for a longer term (you had 20 years remaining on your original loan but refinanced to a 30 year mortgage) in order to get a lower monthly payment, you’ll still end up paying more for the home over the long term if you pay for it longer.  This doesn’t make sense financially if you intend to remain in the home that long; or if you can afford your existing monthly payments without refinancing.

Costs of Refinancing a Mortgage

Despite the potential financial benefits of refinancing a mortgage, there are potential costs associated with refinancing, including:

  • Points – prepaid interest to the lender.  The more points you pay at the start of the loan, the lower your interest rate will be.
  • Appraisal Fees – your home will need to be appraised in order to refinance the mortgage, unless it was just done recently.
  • Loan Origination Fees – this fee varies but is normally between .5 and 1% of the total loan amount.
  • Miscellaneous Fees – some mortgage refinances will have recording, copying, document preparation fees, or application fees.

Apply for Refinancing

If you decide that it makes sense to refinance, you’ll need to find a lender and apply.  You can often get the best deal from your existing lender, but you’ll want to shop around and find the lender who can offer you the best interest rate and lowest fees before choosing.

Once your application is complete, it will be sent off for approval and if approved, you’ll be scheduled for a closing and the mortgage will be refinanced.


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