When, How, And Why To Refinance Your Mortgage (Plus How Much It Costs, What You Need To Qualify, And How Long It Takes!)

A home refinance may be one of the smartest things you can do for your financial future.

I happen to know — because I just cut the length of my mortgage in half and am paying only a few bucks more a month to pay my home down much faster!

I knocked my 30-year fixed-rate mortgage down to a 15-year fixed-rate term and also cut my interest rate by half — saving more than 2 percentage points.

Not a bad deal, huh?

Well, refinancing my mortgage was the right move for me, but it may not be for everybody.

Find out if now is a good time to refinance your home…

So, if you’re wondering should you refinance your mortgage now or not…

In this article I’m going to share exactly what it was like refinancing my own mortgage — including:

• Why now was a good time for me to refinance… and how to know when it’s worth it to refinance your mortgage  
• How I refinanced my home recently… exactly what the process was like for me
• What happens when you refinance your mortgage… what to expect when you refinance your mortgage, based on my own experience

I’ll also answer some of the most commonly asked home refinancing questions that can help you decide whether you should refinance your home now or not — including:

1. Why refinance your home — the top reasons to refinance your mortgage in the first place
2. How to refinance your home — the steps to refinance a home these days
3. How much it costs to refinance a home mortgage — and what is required to qualify
4. How long it takes to do a home refinance — from start to finish
5. When to refinance your mortgage — when is it worth it to refinance your mortgage… and when is it not worth it

Why I Decided To Refinance My Home

If you’ve been following me here for a while at TheFunTimesGuide.com, you may recall an article where I previously shared my experience on buying my first house.

Before I bought my first home, I made sure my credit was in great shape, saved enough cash to post a decent down payment, and worked with my longtime credit union. This all came together well for me — and I was able to qualify for some of the best financing terms available at the time. I bought the house with a 30-year, 4.75% fixed-rate loan. Not too shabby in the spring of 2018.

But a lot changed over the course of the next 30 months.

The economic situation evolved to where interest rates took a major plunge. They eventually bottomed out below 3% for both 15-year and 30-year fixed-rate mortgages. By the summer of 2020, my credit union was offering a 15-year fixed-rate mortgage for 2.375%, with the 30-year option going for as low as 2.625%. Wow!

It was time for me to make some decisions…

Should I refinance my house? What’s the best refinancing rate available? If I refinance, do I go for a 15-year or a 30-year mortgage?

Ultimately, I chose a 15-year fixed-rate term with no discount points and the closing costs rolled into the loan.

And… since I was already 2 years into my 30-year mortgage and refinancing meant starting a new loan term, I was effectively able to knock about 13 years off the time between buying my home and paying it off in full!

When, How, And Why To Refinance Your Mortgage… Plus How Much It Costs, What You Need To Qualify, And How Long It Takes

Why did I choose a 15-year fixed-rate mortgage? Why was now the right time? And how will refinancing my mortgage affect how long I need to stay in my home to get the most benefit?

Well, I did a lot of research and asked a lot of questions to get the mortgage refinancing answers I needed to feel confident about this major decision!

Following are answers to 5 of the biggest questions I had about refinancing my mortgage — which ultimately helped me determine that now was the right time to move forward and refinance my house.

#1 – When Is It A Good Time To Refinance Your Home?

Here are the times when you should consider refinancing your home:

• When you have been paying your mortgage for less than half of its full term
• If you qualify for interest rates that are at least 1 point lower than your current rate
• When you have an adjustable-rate, interest-only, or subprime mortgage and you can qualify to refinance your home with a fixed-rate loan

There are also times when it may not make sense to refinance your home:

• When it will take you longer to break even on the monthly savings versus the closing costs you paid than the amount of time you plan to stay in your home
• If it will cost too much for you to pay the closing costs, points, or other prepaid items
• When you have less time remaining on your current mortgage than it would take to pay off the refinanced loan

#2 – How Much Does It Cost To Refinance Your Home?

Refinancing your home to a lower rate and/or a shorter term could save you many tens of thousands of dollars over the life of your loan. But you’ll still need to pay closing costs and possibly also points to get the mortgage you want.

Closing costs to refinance a mortgage can run anywhere from 2% to 6% of the total of the loan — so keep that in mind. For example, if you’re refinancing $200,000, you might need to fork out anywhere from around $4,000 to $12,000 just to process the new mortgage.

You might be able to roll some or all of those out-of-pocket fees into your refinanced mortgage as principal — but remember that if you do, you’ll be paying interest on that for the life of your new loan, too.

In addition to closing costs, you may need to pay additional fees for any unpaid taxes or existing liens.

Finally, there is the issue of mortgage insurance. This can run between $75 and $150 a month for a typical mortgage and is paid monthly when you owe more than 80% of the home’s value. The good news is you can ask to have the private mortgage insurance (PMI) payments removed when the loan-to-value ratio falls below 80%.

Here’s a handy, no-frills mortgage calculator!

#3 – What Do You Need To Refinance Your Mortgage?

Every financial institution has its own rules and qualifying factors for refinancing a mortgage.

This is what my credit union required from me before I closed on the loan:

• A credit check
• Income verification
• Employment verification
• Assets and liabilities verification
• An application verifying my personal information and background

#4 – How Long Does It Take To Refinance A House?

I happened to begin the mortgage refinance application process in August 2020, right as a huge wave of American homeowners were also doing the same thing. And this slowed down the process — something even the loan officers at my credit union openly admitted.

I locked in my rate about 3 weeks later and my home was appraised in late September. (A home appraisal is one of the required steps to refinance a home — to ensure that the amount you’re going to refinance does not exceed the home’s actual value.)

Paperwork was processed over the next 2 months, and closing on the refinanced loan happened in mid November.

In sum, it took about 3 months to process the mortgage refinancing on my home.

Of course, the amount of time it takes for you to refinance your home may vary based on a variety of factors both within and beyond your control.

A refinance typically takes 30 to 45 days to complete. However, no one will be able to tell you exactly how long yours will take. Appraisals, inspections and other third parties can delay the process. Your refinance might be longer or shorter, depending on the size of your property and how complicated your finances are.

—Rocket Mortgage

#5 – Does It Really Make Sense To Refinance Your Home?

Only you and your financial advisor can make that call.

But I can tell you refinancing my home worked out well for me!

Here’s why:

• I knocked more than 2 percentage off the mortgage interest rate and shaved around 13 years off the loan, too.
• In my case, going from a 30-year fixed-rate loan down to a 15-year fixed rate loan at these rates resulted in paying only a small amount more each month — about $25 more, the way it worked out based on my taxes and other monthly housing costs.
• While I’m paying a little more each month with the new loan, I’m saving tens of thousands of dollars over the course of the loan and paying the house off well more than a decade sooner.
• Even if I move, I’m going to be keeping the house as a rental property. So I will own the house plenty long enough for the refinancing to make sense. If I had planned to sell it in, say, 2 or 3 years, then refinancing wouldn’t save me any money — it might even cost me more in the end (due to the closing costs).
• Because I plan to keep the house for the long-term, I will eventually pay off the mortgage altogether — and a whole lot sooner because I refinanced my 30-year mortgage to a 15-year loan. That could mean an earlier retirement, or money for another home down the line! Hmm… Decisions, decisions. Either way, I can potentially live “mortgage free” a whole lot sooner now. And the mortgage-free life is real financial freedom.

6 Additional Tips For Refinancing Your Mortgage

Before, there was so much that I didn’t know about when, how and why to refinance your mortgage.

Now I do — thanks to this being all behind me!

I also picked up a ton of great advice, too. Here are a few more helpful mortgage refinancing tips I learned:

1. Want to free up more of your income? Instead of opting for a shorter-term loan (like I did), consider a longer loan — such as a 30-year, or even a 50-year mortgage. Assuming you’re refinancing to a lower (cheaper) rate, you’ll have more cash available for retirement funds or other investments.
2. If you do refinance to a longer-term loan, you can still pay it off sooner by paying more than the minimum monthly payments. Always make sure any extra amount you pay toward your loan goes directly to the principal of the loan. Also, and perhaps more importantly, make sure your mortgage has no prepayment penalty.
3. Lock in your rate the moment it appears to be at its lowest point — but keep in mind that you may still be able to lower your rate even further before closing. The catch? If you elect to choose a lower rate after you’ve initially locked in your rate with the bank and before closing, you might be required to pay points to achieve that new lower interest rate.
4. If you’re short on cash, consider rolling the closing costs and other qualifying prepaids into the principal of your loan.
5. I had planned and prepared for the refinancing of my home for quite a while before I actually did it — because I knew that it was important to protect your credit before you actually refinance. That means don’t take out any new loans, avoid maxing out credit cards, and keep from making other consumer mistakes that could hurt your credit rating before you refinance your house. Remember, your credit score is a critical component in deciding what mortgage interest rate you ultimately qualify for!
6. Ask people you trust for advice before you refinance your house. And don’t do it just because you’re hearing about so many others who are refinancing their homes. Refinancing your mortgage may not be right for you now. Or it could be the smartest financial move you make yet. Have an open conversation with a financial planner about your mortgage, long-term homeownership plans, financial health, and overall fiscal goals to see if refinancing your mortgage now is right for you.

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