Rate & Term Refinance

The general rule is that refinancing makes sense when you can lower your interest rate by at least 0.5% to 0.75% and plan to stay in your home long enough to recoup closing costs. Closing costs on a refinance typically range from 2% to 5% of the loan amount. Divide the closing costs by your monthly savings to find your break-even point. For example, if closing costs are $4,000 and you save $200 per month, you break even in 20 months. If you plan to stay in the home longer than that, refinancing is worth it.

A rate-and-term refinance changes the interest rate and/or the loan term without increasing the loan balance (aside from rolling in closing costs). You do not receive any cash at closing beyond a nominal amount (usually up to $2,000). A cash-out refinance increases your loan balance and gives you the difference as cash. Rate-and-term refinances typically have lower rates, lower closing costs, and less stringent underwriting requirements because they represent less risk to the lender.

Refinancing typically costs 2% to 5% of the loan amount in closing costs. On a $300,000 mortgage, expect to pay $6,000 to $15,000. These costs include an appraisal fee ($400-$700), title insurance, origination fees, recording fees, and other charges. At DirectLender.com, we offer competitive closing costs because there are no broker fees added to your loan. We also offer no-closing-cost refinance options where the costs are rolled into a slightly higher interest rate.

Yes, refinancing is one of the best strategies for eliminating mortgage insurance. If you originally purchased with an FHA loan (which has permanent MIP), refinancing into a conventional loan removes the FHA mortgage insurance once you have at least 20% equity. If you have a conventional loan with PMI and your home has appreciated significantly, refinancing with a new appraisal showing at least 20% equity means the new loan will not require PMI. In some cases, you do not need to refinance; simply requesting PMI removal from your current lender with a new appraisal may be sufficient.

Refinancing from a 30-year to a 15-year mortgage can save you tens of thousands of dollars in interest over the life of the loan. Fifteen-year mortgages also carry lower interest rates, typically 0.5% to 0.75% below 30-year rates. The trade-off is a higher monthly payment. On a $300,000 loan at 6% for 30 years, your payment is about $1,799. At 5.5% for 15 years, it rises to about $2,451 but you pay $124,000 less in total interest. This makes sense if you can comfortably afford the higher payment and want to build equity faster.