How to Refinance Your Mortgage in 2026

How to Refinance Your Mortgage in 2026

Refinancing your mortgage means replacing your existing home loan with a new one on the same property. Homeowners refinance to lower their interest rate, reduce their monthly payment, change loan terms, or access home equity. Understanding how refinancing works can help you prepare and potentially save money — but it’s essential to evaluate your own situation carefully and speak with a mortgage professional for individualized advice.

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6 Steps to Refinancing Your Mortgage

1. Prepare your finances

Before applying, make sure your financial profile is strong:

• Check and improve your credit score. Even small increases may help you qualify for better rates.
• Calculate your debt-to-income ratio (DTI). Paying down existing debts can help you qualify more easily.
• Set aside money for closing costs. Refinance closing costs typically run 3% to 6% of the loan amount.
• Check for a prepayment penalty on your existing loan. Some mortgages include fees for paying the loan off early. Understanding this upfront can help you avoid unexpected costs.

2. Choose the type of refinance that fits your goals

Your refinancing purpose determines which option is best:

• Rate-and-term refinance: for lowering your rate, adjusting your term, or switching from adjustable to fixed.
• Cash-out refinance: to convert home equity into cash.
• Streamline refinance: for certain government-backed loans, typically with reduced documentation.
• Cash-in refinance: bring cash to lower your loan balance and reduce payments.
• No-closing-cost refinance: avoids upfront fees but may result in a higher rate or larger balance.
• Short refinance: an option in specific hardship situations.
• Reverse mortgage: converts equity into funds for eligible older homeowners.

If you’re unsure, consult a licensed mortgage professional who can assess which structure aligns with your financial goals.

3. Shop lenders and compare Loan Estimates

You can refinance with your current lender, but it’s smart to compare offers:

• Apply with multiple lenders within a short window.
• Compare each lender's Loan Estimate for interest rate, fees, and APR.
• Pay close attention to total costs rather than just the advertised rate.

A mortgage professional can help you interpret competing offers and point out differences that aren’t always obvious.

4. Decide whether to lock your rate

Rate locks protect you from rising rates before closing. You may:

• Lock if rates are trending upward
• Float if rates seem to be declining

Some lenders charge for longer rate locks, so review terms carefully.

5. Get an appraisal (unless waived)

Most refinances require an appraisal to verify your home’s value, though certain programs may allow a waiver. Appraisal costs vary by area.

6. Close on your new mortgage

At closing:

• Your new loan pays off the old one
• You pay closing costs (unless rolled into the new loan)
• Your new payment schedule begins immediately

Before closing, verify again whether your current loan includes a prepayment penalty, as this may affect your total costs.

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When Refinancing Might Be a Good Idea

You may benefit from refinancing when:

• Interest rates are lower than your current rate
• Your credit score has improved, potentially unlocking better pricing
• You want a new loan term for lower payments or faster payoff
• You’ve built enough equity to stop paying mortgage insurance
• You want to switch between an adjustable-rate and fixed-rate mortgage

Always calculate your break-even point—how long it takes for monthly savings to outweigh the closing costs.

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When Refinancing May Not Be Worth It

• You plan to sell in the next few years
• You will not break even before moving
• Your current loan has a large prepayment penalty
• Closing costs outweigh potential savings

A mortgage professional can analyze your repayment timeline and savings projections.

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Pros and Cons of Refinancing

Pros

• Potentially lower interest rate
• Possible lower monthly payment
• Ability to shorten payoff time
• Access to home equity
• Option to remove mortgage insurance

Cons

• Closing costs
• Possible prepayment penalty
• Hard credit inquiry
• May not pay off if you move soon

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How Refinancing Affects Your Credit

Expect a short-term dip due to a hard credit inquiry. Your score usually recovers as you make on-time payments.

If you have lower credit, options may include:

• Adding a co-signer
• Using refinance programs with reduced documentation (where applicable)
• Improving credit before applying

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Final Reminder: Consult a Mortgage Professional

Because refinancing involves legal, financial, and tax considerations, your personal circumstances matter. Always:

• Review your current loan terms for prepayment penalties
• Discuss your refinance goals with a qualified mortgage professional
• Compare multiple offers before deciding