When Should You Refinance Your Mortgage?

What Refinancing Actually Does

Refinancing a mortgage means replacing your existing home loan with a brand new loan, typically with different terms. Your current mortgage is paid off in full using the proceeds from the new loan, and you begin making payments on the new loan going forward. It is essentially like hitting a reset button on your mortgage, except you get to choose new terms that ideally work better for your current financial situation.

When you refinance, the new lender (which can be your current lender or a different one) runs a fresh underwriting process. This means a new credit check, a new appraisal of your home, verification of your income and assets, and review of your debt obligations. The process mirrors a purchase mortgage application in most respects, though it is sometimes faster because the property already has an established ownership history and title record.

The new loan pays off the remaining balance of your old mortgage. If you owe $280,000 on your current mortgage and refinance into a new $280,000 loan, the old loan disappears from your records (though it remains in your credit history for several years). The new loan starts with its own amortization schedule, interest rate, and term. This fresh start is both the primary advantage and the primary risk of refinancing — it gives you better terms, but it also restarts the amortization clock, which means more of your early payments go toward interest rather than principal.

There are two fundamental types of refinance. A rate-and-term refinance changes your interest rate, your loan term, or both, without increasing the loan balance beyond the payoff amount plus closing costs. A cash-out refinance increases the loan balance beyond the payoff amount, putting the difference in your pocket as cash. Each type serves different financial objectives and carries different costs and risk profiles. Understanding the distinction is critical before you decide which path to pursue. You can model both types using our refinance calculator.

One important detail that many borrowers overlook: refinancing does not eliminate any remaining obligation from your original loan. If you had escrowed property taxes or homeowner’s insurance with your original lender, the escrow account will be closed and any remaining balance refunded to you, typically within 30 days of the old loan being paid off. You will then need to establish a new escrow account with your new lender, which usually requires an upfront deposit equivalent to two to three months of escrow payments at closing. This can add several hundred or even a few thousand dollars to your upfront costs.

The 1–2% Rule of Thumb

For decades, the conventional wisdom held that you should refinance when you can reduce your interest rate by at least 1 to 2 percentage points. This rule of thumb originated in an era when refinancing costs were relatively high and the process was cumbersome, making it impractical to refinance for smaller rate improvements. While the 1–2% rule provides a quick screening test, it is far too simplistic for making an informed refinancing decision in today’s market.

The problem with the 1–2% rule is that it ignores several critical variables. It does not account for the size of your loan, the remaining term, your closing costs, how long you plan to stay in the home, or what you would do with any monthly savings. A 1% rate reduction on a $100,000 loan produces very different results than a 1% reduction on a $500,000 loan. Similarly, a 1% reduction with $12,000 in closing costs has a very different payback period than the same reduction with $4,000 in closing costs.

Consider this example: you have a $400,000 mortgage at 7.5% with 27 years remaining. If you can refinance to 6.5% (a 1% reduction) with closing costs of $8,000, your monthly payment drops from $2,797 to $2,528 — a savings of $269 per month. Dividing the $8,000 cost by $269 monthly savings gives a break-even period of approximately 30 months. If you plan to stay in the home for at least three years, this refinance clearly makes sense. Check the specific numbers for your situation with our mortgage calculator.

Now consider the same scenario but with only a 0.5% rate reduction, from 7.5% to 7.0%. The monthly savings drops to approximately $138, and the break-even period extends to 58 months (nearly five years). This might still make sense if you plan to stay in the home for seven or more years, but it would not pass the traditional 1–2% rule. Conversely, a borrower who can reduce their rate by 1.5% but plans to move within a year should not refinance, despite easily clearing the rule-of-thumb threshold.

The 1–2% rule is also disconnected from the broader interest rate environment. When rates are at 8%, a 1% drop represents a 12.5% reduction in your borrowing cost. When rates are at 4%, a 1% drop represents a 25% reduction. The dollar savings on a percentage-point reduction are proportionally larger at higher rate levels because the base interest charge is higher. This means that in low-rate environments, even a 0.5% improvement can produce meaningful savings that justify refinancing.

Rather than relying on this outdated rule of thumb, use a proper break-even analysis to evaluate every refinancing opportunity. The break-even calculation accounts for all the relevant variables and gives you a clear, personalized answer about whether refinancing makes financial sense for your specific situation.

Break-Even Analysis Explained

The break-even analysis is the most reliable tool for evaluating whether a refinance makes financial sense. At its core, the calculation is straightforward: divide your total refinancing costs by the monthly savings the new loan provides. The result tells you how many months it will take for the cumulative monthly savings to recoup the upfront costs. If you plan to stay in the home longer than the break-even period, the refinance is likely worthwhile. If not, you will lose money by refinancing.

Let us walk through a detailed example. Sarah has a $350,000 mortgage at 7.25% with 25 years remaining. Her current monthly principal and interest payment is $2,507. She receives a refinance offer at 6.5% for a new 25-year term, with total closing costs of $7,500. The new payment would be $2,364, saving her $143 per month. The basic break-even calculation is $7,500 divided by $143, which equals 52 months — about 4 years and 4 months. If Sarah plans to stay in her home for at least five years, the refinance works in her favor.

However, a more sophisticated break-even analysis considers additional factors. First, the opportunity cost of the closing costs: if Sarah could invest that $7,500 at 5% annually instead of spending it on refinancing, it would grow to approximately $9,600 over five years. Second, the tax implications: if Sarah itemizes deductions, the reduced interest payment also reduces her mortgage interest deduction, partially offsetting the monthly savings. Third, the amortization reset: by starting a new 25-year loan, Sarah pushes her payoff date further into the future compared to staying on her current loan with only 25 years remaining.

The amortization factor deserves special attention. If Sarah is 5 years into a 30-year mortgage (25 years remaining) and refinances into a new 30-year loan, she has effectively added 5 years to her repayment timeline. During those extra 5 years, she will make additional interest payments that partially erode the savings from the lower rate. To avoid this trap, she could refinance into a 25-year term (matching her remaining term) or even a 20-year term. The shorter term increases monthly payments but ensures she is not extending her financial commitment. View how different terms affect total interest with our amortization schedule.

A truly comprehensive break-even analysis also accounts for what happens after the break-even point. Every month beyond break-even represents pure savings. On a $350,000 loan, $143 per month in savings over 20 years beyond the break-even point totals approximately $34,320 in cumulative savings (not accounting for time value of money). When you calculate the net present value of these future savings, the refinance becomes even more compelling for borrowers who plan to stay in their homes long-term.

One practical tip: always run the break-even analysis with multiple scenarios. Calculate the break-even using only the rate savings, then recalculate including PMI removal (if applicable), term change benefits, and opportunity costs. This gives you a range of outcomes rather than a single number, helping you make a more informed decision. Our refinance calculator can help you model these different scenarios quickly.

Rate-and-Term Refinance Scenarios

A rate-and-term refinance is the most common type of refinancing, focused on improving either the interest rate, the loan term, or both. No cash is extracted from the home’s equity beyond what is needed to pay off the existing mortgage and cover closing costs. This type of refinance generally offers the best pricing because it carries lower risk for the lender compared to cash-out transactions.

The most straightforward scenario is a simple rate reduction. Suppose you bought your home three years ago at 7.5% on a 30-year fixed mortgage with a balance of $380,000. If you can refinance to 6.5% on a new 30-year fixed, your payment drops from $2,661 to $2,402 — a monthly savings of $259. Over the remaining life of the original loan (27 years), this refinance saves approximately $83,800 in total interest, even after accounting for the added interest from restarting the 30-year clock. The key question is whether the closing costs (typically $7,600 to $19,000 on this loan amount) justify the savings given your time horizon.

A term-reduction refinance swaps your current loan for one with a shorter repayment period. If you currently have a 30-year mortgage with 25 years remaining and refinance into a 15-year fixed, your monthly payment increases but you build equity much faster and pay far less total interest. Using the same $380,000 balance, moving from a 30-year at 7.5% ($2,661/month) to a 15-year at 5.9% ($3,220/month) increases your payment by $559 but reduces total interest from roughly $483,000 to approximately $200,000 — a savings of about $283,000. If your budget can handle the higher payment, this is one of the most powerful financial moves a homeowner can make.

A third scenario involves extending the term to reduce monthly payments when cash flow is the primary concern. If you have a 15-year mortgage with 12 years remaining and are struggling with the high payments, refinancing into a new 30-year mortgage dramatically reduces your monthly obligation. This strategy increases total interest costs significantly, but it can provide crucial breathing room during financial hardship, prevent missed payments, and avoid the devastating credit consequences of default or foreclosure. It should be viewed as a last resort rather than a primary strategy.

Combining rate and term changes can produce compelling results. Suppose you have a $320,000 balance at 7.0% on a 30-year loan with 26 years remaining (monthly payment of $2,129). Refinancing to a 20-year loan at 6.25% results in a payment of $2,342 — only $213 more per month — but you pay off the home 6 years sooner and save approximately $137,000 in total interest. This type of combination refinance is often overlooked because borrowers focus exclusively on the 15-year versus 30-year comparison, but 20-year and 25-year terms offer attractive middle ground.

When evaluating rate-and-term scenarios, pay attention to the pricing differences. Rate-and-term refinances typically receive better pricing than cash-out refinances because they carry lower default risk. Fannie Mae and Freddie Mac impose smaller Loan-Level Price Adjustments on rate-and-term transactions, which translates to rates that are typically 0.125 to 0.375 percentage points lower than comparable cash-out refinance rates.

Cash-Out Refinance: When It Makes Sense

A cash-out refinance replaces your existing mortgage with a larger loan, and you receive the difference as a lump sum of cash. For example, if your home is worth $500,000 and you owe $300,000, you have $200,000 in equity. A cash-out refinance might allow you to borrow $400,000 (80% of the home’s value), pay off the $300,000 existing mortgage, and pocket $100,000 in cash (minus closing costs). This is one of the least expensive ways to access large sums of money, but it comes with significant risks and considerations.

The most financially sound use of cash-out proceeds is debt consolidation when the math clearly favors it. If you are carrying $50,000 in credit card debt at 22% interest, consolidating it into your mortgage at 6.75% dramatically reduces your interest expense. The monthly interest on $50,000 at 22% is approximately $917, while the same amount at 6.75% costs about $281 in monthly interest. That is a savings of $636 per month in interest alone. However, this strategy only works if you address the spending habits that created the credit card debt in the first place. Otherwise, you risk accumulating new credit card debt while also carrying a larger mortgage.

Home improvements represent another valid use case, particularly renovations that add value to the property. A $75,000 kitchen renovation or a $40,000 bathroom remodel can increase your home’s value, partially or fully offsetting the increased loan balance. The interest on a cash-out refinance used for home improvements may also be tax-deductible if the improvements substantially improve the home (consult a tax advisor for current rules). Compare this to a home equity line of credit, which offers similar access to equity with different terms and flexibility.

Education expenses, particularly for professional degrees with high earning potential, can justify a cash-out refinance when student loan rates are higher than mortgage rates. Medical school, law school, or MBA programs that reliably lead to high-paying careers may be worth funding through home equity, though this approach carries the risk of putting your home on the line for an educational outcome that is not guaranteed.

Investment purposes represent the most controversial use of cash-out refinance proceeds. Some homeowners extract equity to invest in rental properties, stock market portfolios, or business ventures. While this can be profitable when investments outperform the mortgage rate, it exposes your primary residence to the risk of investment losses. Financial advisors generally caution against leveraging your home to invest in volatile assets, though the strategy can make sense for experienced investors with diversified portfolios and adequate emergency reserves.

Cash-out refinances carry higher rates than rate-and-term refinances, typically 0.125 to 0.50 percentage points more. Most lenders cap cash-out refinances at 80% loan-to-value, meaning you must retain at least 20% equity in the home after the refinance. Some lenders allow up to 85% LTV for borrowers with excellent credit, but the pricing surcharges increase significantly. Veterans using VA loans can access cash-out refinances up to 100% LTV, though this eliminates all equity cushion and carries substantial risk if home values decline.

Before pursuing a cash-out refinance, honestly evaluate whether the planned use of funds justifies converting unsecured obligations into secured debt backed by your home. If you default on credit card debt, you face damaged credit and collection efforts. If you default on your mortgage after a cash-out refinance, you face foreclosure and potential homelessness. The stakes are fundamentally different, and that difference should factor prominently into your decision.

Refinancing to Remove PMI

Private mortgage insurance (PMI) is required on conventional mortgages when the down payment is less than 20%. PMI protects the lender — not the borrower — against losses if the borrower defaults. Monthly PMI premiums typically range from $80 to $300 per month on a $300,000 loan, depending on the borrower’s credit score and the loan-to-value ratio. Over time, as home values rise and loan balances decline, many borrowers reach the 20% equity threshold that makes PMI unnecessary. Refinancing is one way to eliminate this expense.

Before refinancing specifically to remove PMI, you should first try the simpler and less expensive route: requesting PMI cancellation from your current lender. Under the Homeowners Protection Act of 1998, lenders are required to automatically cancel PMI when your loan-to-value ratio reaches 78% of the original purchase price through normal amortization. You can also request cancellation when your LTV reaches 80%, though the lender may require an appraisal to confirm the property value. Use our PMI calculator to see where you stand.

Refinancing to remove PMI makes sense when your current lender will not cancel PMI based on a new appraisal, or when your home has appreciated significantly but you have not yet reached 80% LTV based on the original purchase price. For example, if you bought a home for $350,000 with 10% down ($315,000 loan) and the home is now worth $450,000, your current LTV based on the original price is still 90%. But based on the current value, your LTV is only 70% ($315,000 / $450,000). A refinance at current market value would establish the new LTV at 70%, well below the PMI threshold.

The financial case for PMI-removal refinancing depends on the PMI savings versus the refinancing costs. If you are paying $200 per month in PMI and the refinance costs $7,000, the break-even is 35 months. If the refinance also reduces your interest rate, the combined savings make the break-even even faster. However, if your current interest rate is lower than what is available today (common for borrowers who locked in during 2020–2021), the rate increase might offset or exceed the PMI savings, making the refinance counterproductive.

FHA loans present a special case. FHA mortgages originated after June 3, 2013 with less than 10% down carry mortgage insurance premium (MIP) for the entire life of the loan — it never cancels regardless of how much equity you build. The only way to eliminate FHA MIP in this situation is to refinance into a conventional loan. If you have built sufficient equity (at least 20%) and your credit score qualifies for competitive conventional rates, this refinance can save you thousands over the remaining life of the loan. Compare FHA and conventional options with our FHA loan calculator.

When evaluating a PMI-removal refinance, factor in all costs: the refinancing closing costs, any rate increase relative to your current loan, the escrow account adjustment, and the remaining months of PMI you would pay if you did not refinance. In some cases, simply making extra principal payments to reach 80% LTV faster and requesting PMI cancellation is more cost-effective than a full refinance.

Refinancing from ARM to Fixed

Borrowers with adjustable-rate mortgages face a unique refinancing consideration: the risk of future rate increases. While ARM products offer lower initial rates, the adjustment period introduces uncertainty that many homeowners find uncomfortable, particularly as the initial fixed period approaches its expiration date. Refinancing from an ARM to a fixed-rate mortgage eliminates this uncertainty by locking in a permanent rate for the remaining life of the loan.

The optimal timing for an ARM-to-fixed refinance depends on where you are in the ARM’s lifecycle. If you have a 5/1 ARM and you are in year three, you have two more years of fixed-rate payments before adjustments begin. This gives you time to monitor rate trends and refinance strategically. If you are in year four, the urgency increases because the adjustment is only a year away. If your ARM has already begun adjusting and each adjustment is pushing your rate higher, refinancing immediately prevents further increases.

The financial calculation requires comparing the total cost of the ARM (including projected adjustments) with the total cost of a new fixed-rate mortgage. Suppose you have a 5/1 ARM currently at 5.5% with the first adjustment approaching. The ARM’s index is SOFR (currently at 4.3%) and the margin is 2.75%, which means the adjusted rate would be approximately 7.05%. With a 2% initial adjustment cap, your rate could jump from 5.5% to 7.5% in a single year. On a $350,000 balance, this would increase your monthly payment from $1,987 to $2,448 — a $461 monthly shock. If a 30-year fixed rate is available at 6.5%, locking in at that rate provides certainty at $2,212 per month. You can model different ARM scenarios with our ARM calculator.

However, the ARM-to-fixed switch is not always beneficial. If you plan to sell the home before the ARM adjusts, you capture the lower ARM rate without facing any adjustment risk, making a refinance unnecessary. Similarly, if you expect to receive a large sum of money (bonus, inheritance, sale of another asset) that would allow you to pay off the mortgage before adjustments become problematic, the ARM’s lower rate works in your favor.

Another consideration is whether rates are likely to decline. If the Federal Reserve is in an easing cycle (cutting rates), your ARM rate might actually decrease at the next adjustment rather than increase. In a falling-rate environment, ARMs become more attractive because they allow you to benefit from rate decreases without the cost and hassle of refinancing. The challenge, of course, is that predicting future rate movements with certainty is impossible.

For borrowers who value budget certainty and plan to stay in their homes for the long term, the ARM-to-fixed refinance provides peace of mind that has tangible financial value even if the pure mathematical comparison is close. Knowing exactly what your mortgage payment will be for the next 15 to 30 years allows you to plan your budget, savings, and investments with confidence that an adjustable rate simply cannot provide.

When NOT to Refinance

Knowing when not to refinance is just as important as knowing when to proceed. Refinancing in the wrong circumstances can cost you money, extend your financial obligations, and create unnecessary complexity. Here are the most common situations where refinancing is inadvisable.

If you plan to move within the next two to three years, refinancing rarely makes financial sense. The closing costs typically require three to five years to recoup through monthly savings. Moving before the break-even point means you spent money on closing costs without recovering the investment. Even no-closing-cost refinances (where fees are incorporated into a higher rate) need time to generate net savings. If a job change, family growth, or lifestyle shift might prompt a move in the near future, hold off on refinancing.

Refinancing is often counterproductive if you are deep into your current loan’s amortization schedule. In the later years of a mortgage, the majority of each payment goes toward principal rather than interest. Refinancing into a new 30-year loan resets the amortization schedule, meaning you go back to making payments that are mostly interest. For example, if you are 20 years into a 30-year mortgage with only $120,000 remaining, refinancing that amount into a new 30-year loan at a lower rate might reduce your monthly payment but could actually increase the total interest you pay over the remaining life of the debt. See how amortization works with our amortization calculator.

If your credit score has declined since you obtained your original mortgage, the new rate you qualify for might not represent an improvement. Lenders use risk-based pricing, and a lower credit score means higher Loan-Level Price Adjustments that can offset or exceed any general decline in market rates. Before applying, check your credit scores from all three bureaus and compare them to the scores you had when you obtained your current mortgage.

Avoid refinancing to consolidate debt if you have not addressed the root cause of the debt. Rolling $30,000 in credit card debt into your mortgage reduces your monthly payments, but if overspending continues, you will end up with a larger mortgage and new credit card balances. This pattern of serial debt consolidation through home equity has trapped many homeowners in a cycle that ultimately leads to overleveraged homes and financial distress.

Refinancing during a period of financial instability can backfire. If your income has recently decreased, you are between jobs, or your business is experiencing a downturn, the underwriting process may not go smoothly. You might not qualify for the best rates, or the lender might deny the application entirely. The application itself generates hard credit inquiries that temporarily lower your score, which could complicate future borrowing if needed.

Finally, do not refinance based purely on aggressive marketing from lenders. During periods when rates drop, mortgage companies launch aggressive solicitation campaigns through mail, email, phone, and digital advertising. These campaigns are designed to generate loan volume for the lender, not to ensure that refinancing is in your best interest. Always run your own break-even analysis and consult with an independent financial advisor before committing to a refinance based on a lender’s unsolicited offer.

Current Refinancing Costs in 2026

Understanding the full cost of refinancing is essential for making an informed decision. Closing costs on a refinance typically range from 2% to 5% of the loan amount, with the exact figure depending on your location, loan size, lender, and the complexity of the transaction. On a $300,000 refinance, you can expect to pay between $6,000 and $15,000 in total closing costs. Here is a breakdown of the most common fees you will encounter in 2026.

The appraisal fee, which typically costs $400 to $700, covers the cost of a licensed appraiser visiting your property to determine its current market value. The appraisal is required by the lender to confirm that the property value supports the new loan amount. In some cases, particularly for refinances with significant equity, lenders may accept an automated valuation model (AVM) or a drive-by appraisal, which can reduce this cost. However, full appraisals remain the standard for most conventional refinances.

Title insurance and related title fees typically run $1,000 to $2,500. The lender requires a new lender’s title insurance policy to protect against title defects or liens. A title search is conducted to verify that no new liens, judgments, or encumbrances have been placed on the property since the original purchase. Some states allow a “refinance rate” discount on title insurance if the original policy was issued recently, which can save several hundred dollars.

The origination fee or lender fee is a charge from the mortgage company for processing and underwriting the loan. This fee varies widely, from $0 (at some online lenders and credit unions) to 1% of the loan amount ($3,000 on a $300,000 loan). Origination fees are one of the most negotiable closing costs, and shopping multiple lenders often reveals significant variation. Some lenders advertise low rates but compensate with higher origination fees, while others take the opposite approach.

Recording fees ($100 to $300), credit report fees ($25 to $75), and flood certification fees ($15 to $25) are relatively minor but add up. Attorney fees, required in some states for real estate closings, can add $500 to $1,500. Transfer taxes and mortgage taxes vary dramatically by state and locality — some jurisdictions impose substantial taxes on new mortgages that can add thousands to closing costs.

Prepaid items, while not technically closing costs, represent upfront cash you need at closing. These include prepaid interest (the per-diem interest from your closing date to the end of the month), escrow deposits for property taxes and insurance, and the initial month’s homeowner’s insurance premium. Prepaid items can add $2,000 to $5,000 depending on your tax rate, insurance costs, and closing date.

No-closing-cost refinances deserve special mention. These products waive upfront closing costs in exchange for a higher interest rate, typically 0.25 to 0.50 percentage points higher than the rate you would receive with standard closing costs. The higher rate means you pay more interest every month for the life of the loan, which is why this option works best for borrowers who plan to refinance again within a few years or who lack the cash for upfront costs. Over a 10-year period, the higher rate on a no-cost refinance usually costs more than paying the closing costs upfront, but over a 3-to-5-year period, the no-cost option can be cheaper.

Step-by-Step Refinancing Process

The refinancing process follows a predictable sequence that typically takes 30 to 45 days from application to closing. Knowing what to expect at each stage helps you prepare the necessary documents, respond promptly to lender requests, and avoid delays that could jeopardize your rate lock. Here is a comprehensive walkthrough of the refinance process in 2026.

Step 1: Evaluate your current situation (1–2 weeks before applying). Before contacting any lender, gather your current mortgage statement showing your balance, rate, and remaining term. Pull your credit reports from AnnualCreditReport.com and check your FICO scores. Calculate your current loan-to-value ratio using your estimated home value (online tools like Zillow or Redfin provide rough estimates). Determine your goals: are you seeking a lower rate, shorter term, cash out, or PMI removal? Having clear objectives helps you evaluate offers more effectively.

Step 2: Shop for rates (3–5 days). Contact at least three to five lenders for rate quotes. Include a mix of your current lender, local banks, credit unions, online lenders, and mortgage brokers. Provide consistent information to each lender so you receive comparable quotes. All mortgage inquiries within a 14-to-45-day window count as a single hard pull on your credit, so shop aggressively without worrying about score damage. Compare offers using the Loan Estimate form, focusing on rate, APR, and total lender fees.

Step 3: Choose a lender and apply (1 day). Once you have selected the best offer, complete the formal application. Most lenders allow online applications that take 30 to 60 minutes. You will provide personal information, employment history, income details, asset information, and details about the property. The lender will issue a Loan Estimate within three business days. Have these documents ready: two years of tax returns, two months of bank statements, recent pay stubs, your current mortgage statement, and homeowner’s insurance declaration page.

Step 4: Lock your rate (same day as application or within a few days). A rate lock guarantees your quoted rate for a specified period, typically 30 to 60 days. Lock as soon as you are comfortable with the rate, because rates change daily and a favorable rate can disappear overnight. Get the rate lock in writing, including the rate, points, lock expiration date, and any float-down provisions. If your closing is delayed beyond the lock period, you may need to pay for a lock extension (typically 0.125% to 0.25% of the loan amount).

Step 5: Appraisal and underwriting (2–3 weeks). The lender orders an appraisal to determine your home’s current market value. This typically takes 1 to 2 weeks to schedule and complete. Simultaneously, the underwriter reviews your application, verifying income, assets, employment, and credit. Expect at least one round of “conditions” — additional documents or explanations the underwriter needs before issuing final approval. Respond to conditions as quickly as possible; delays at this stage are the most common reason refinances take longer than expected.

Step 6: Clear to close (1–3 days before closing). Once the underwriter approves all conditions, you receive a “clear to close” status. The lender issues the Closing Disclosure (CD), which details all final terms and costs. You are required to receive the CD at least three business days before closing, giving you time to review it for accuracy. Compare the CD to your original Loan Estimate — certain fees cannot increase, while others have limited tolerance for change. If anything looks wrong, contact your loan officer immediately.

Step 7: Closing (1 hour). At closing, you sign the promissory note (your promise to repay the loan), the deed of trust or mortgage (the document that gives the lender a security interest in your home), and various federal and state disclosure forms. You will pay any closing costs not being rolled into the loan via wire transfer or cashier’s check. After signing, there is typically a three-day rescission period during which you can cancel the refinance without penalty (this right does not apply to purchase mortgages). Once the rescission period expires, the new loan funds, and your old mortgage is paid off.

Step 8: Post-closing (1–2 months). After closing, you will receive a refund of your old escrow balance within 30 days. Your new loan’s first payment is typically due 30 to 60 days after closing. Set up autopay with your new servicer immediately to avoid any risk of missing the first payment. Continue monitoring your accounts to confirm the old mortgage shows as paid in full on your credit report and that the new mortgage appears with the correct terms.

Frequently Asked Questions