There are a lot of reasons to refinance your home. This can include receiving cash from your property, lowering your monthly payment and/or shortening the term of your loan.

That’s all well and good, but are you wondering what happens when you refinance your home? How does it work logistically? What’s the effect it has on your current loan and payments?

Read on to get the answers to all these questions and more.  

What Happens When You Refinance Your Home?

When you refinance your home mortgage, you are essentially exchanging your current mortgage for a new one. Usually this means the principal, interest rate, term and monthly payments will be different on the new loan.

Your lender will use the money from your new mortgage to pay off the old one. So you will pay off the old mortgage and be left with just a single loan and a single monthly payment.

Refinancing will feel similar to applying for your mortgage for the first time. A lender will examine your financial statements to determine your risk tolerance and eligibility for the most favorable interest rate. 

It’s a completely new loan, and the lender may be different than the one you used to purchase your home originally.

One thing to keep in mind when refinancing is that you may be resetting the repayment clock when you get your new loan. Let’s say you’ve paid five years’ worth of mortgage payments on your current 15-year loan. That means the loan will expire in ten years. 

But if you refinance to a new 15-year loan, you’ll start over with a new 15-year loan and a new 15-year repayment period.

Although many of the steps are similar, the refinancing process is frequently less complicated than the home buying process. While it’s difficult to predict how long your refinance will take, a typical timeline is between 30 and 45 days.

Steps to Refinancing Your Mortgage

Mortgage refinance steps include the following:

Set a Goal

Whether it’s to lower monthly payments, shorten loan terms, or access equity for home improvements or debt reduction, refinancing should be justified for some reason.

Each situation is unique, as are each person’s priorities. Among other things, you may want to reduce monthly payments, shorten loan terms, or eliminate FHA mortgage insurance.

Examine Your Credit History

You’ll need to qualify for a refinance, much like your first loan. The better your credit score, the better refinance rates you’ll get, and the more probable your loan will be approved.

Know Your Equity

Home equity is the difference between the value of your home and your mortgage. Your mortgage statement will show you the current balance. 

To find out your home’s current estimated value, do an online search or employ a real estate specialist. The difference between what your home is worth and what you owe on your loan is your home equity.

Get A New Mortgage

The first step is to assess your refinancing alternatives and choose the best one for you. When you apply for a refinance, your lender will ask for the same information they did when you bought your house.

Income, assets, debt, and credit score will be examined to determine the refinance eligibility and repayment ability.

You do not have to use the same lender you have your current mortgage with. So shop around to find the best deal you can.

Rate Lock-In

After approval, you may be able to lock in your interest rate, preventing it from changing until the loan closes.

Rate locks usually last 15-60 days. The length of the rate lock period depends on your region, loan type, and lender.

Mortgage Examining

Once you submit your application, your lender will begin underwriting. During the underwriting procedure, your mortgage lender verifies your financial information.

Solicitors will check the property’s data, including the acquisition date. This process involves getting an appraisal to determine the home’s value. The refinance evaluation establishes your loan options.

Home Valuation

Just as when you bought your home, you must have an appraisal before refinancing. Mortgage lenders typically require a refinance appraisal to determine your home’s current market value.

To prepare for the inspection, make sure your home is in great shape. 


The loan can be closed after underwriting and home appraisal. Pay the closing costs included in the Loan Estimate and the Closing Disclosure.

Refinancing can be classified into two broad categories: rate and term refinance, and cash-out refinance. Here’s more on each type…

Rate and Term Refinance

A rate and term refinance typically entails getting a new mortgage with a lower interest rate and possibly a shorter amortization period (30 years changed to a 15-year term).

Cash-Out Refinance

With a cash-out refinance, you can borrow up to 80% of the current value of your house. Thus, the term “cash-out refinance” was coined.

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