When and How to Refinance YOUR HOME

Reasons to refinance your home

The best reason to refinance your home is if it will save you money. Will refinancing allow you to lower your monthly payment or save money on total interest over the life of your loan? If so, it’s a good option to consider.

These are the most common reasons to refinance a home:

• Lower your rate
• Lower your monthly payment
• Pay off your loan sooner
• Switch from an adjustable to a fixed-rate mortgage
• Divorce
• Retirement
• Take out cash (for home improvements, debt consolidation, etc.)

What is not a good reason to refinance?

We often see people looking to refinance simply because current rates are low, and they have friends or family who’ve recently refinanced. This alone is not a good reason to refinance your home. It’s important to analyze your individual situation to see if it makes sense for you.

Best time to refinance

The best time to refinance a home depends on several factors. Generally, refinancing is a good option to consider if:

• You can get a lower interest rate
• You’ve only lived in your current home for a few years
• You plan on staying in your home for 10+ years
• You’re in good financial standing with good credit
• You have cash on hand to cover upfront closing costs

Will you be able to pay off the new loan faster while keeping your monthly payment the same? If the answer is yes, it’s a good time to refinance.

How many years should you wait to refinance your home?

How soon is too soon to refinance? You may need to wait at least 6 months after buying your home to refinance. Whether or not there’s a required waiting period will depend on your lender, as well as the type of refinance loan. For a cash-out refinance, you’ll typically have to wait 6 months or longer.

Types of refinance loans (rate-and-term vs. cash-out)

There are two main types of refinance loans: rate-and-term and cash-out. Which one you choose will depend on if you want access to cash or if you simply want to lower your monthly payment or pay off your mortgage faster.

Rate-and-term refinance

A rate-and-term refinance (also called a “traditional” or “no cash-out” refinance) allows you to change the interest rate and term of your mortgage without adding any new money to the loan. With a rate-and-term refinance, your premium balance will stay the same.

Cash-out refinance

A cash-out refinance allows you to “take cash out,” or access the value that’s accumulated in your current home in the form of cash. A cash-out refinance will replace your current mortgage with a new, larger loan. You will have a new term, rate, and monthly payment, as well as a higher premium balance. 

The money you take out may be used to make home improvements, consolidate debts, or cover a variety of other expenses (e.g., college tuition, medical expenses).

Cash-out refinance vs. HELOC

If you need an influx of cash, a HELOC is another option. The biggest difference between a cash-out refinance vs. HELOC is that a cash-out refi replaces your current mortgage, while a HELOC is an additional loan on top of your current mortgage. 

What is a HELOC?

HELOC stands for home equity line of credit. Also called a “home equity loan” or “second mortgage,” a HELOC allows you to access cash based on your home’s value. A HELOC is a “second loan” separate from your mortgage and may be used for things like debt consolidation, home improvements, etc. So you will have a second payment to make in addition to your current monthly mortgage payment. Your home will serve as collateral to secure the HELOC. 

Is it better to refinance or take out a home equity loan?


When deciding between a cash-out refinance and a home equity loan, the best choice depends on interest rates. If you can get a lower rate than your original mortgage, cash-out refi is probably your best option.

Steps to refinance your home

Now that we’ve covered the various reasons and best time to refinance a home, as well as the different types of loans available, let’s step back to review the steps involved—from deciding if refinancing makes sense, to choosing a lender, to applying for a new loan.

Here’s a quick overview of how to refinance your home: 

1. Do your homework
2. Choose your lender
3. Apply for a refinance loan

Now, let’s dive deeper for a more detailed breakdown of the steps to refinance a home.

Step 1: Do your homework

First, do your research and run the numbers to determine if refinancing makes sense for you and if now is the right time to do it. Remember, refinancing is a good option if and when:

• You can lower your rate
• You’ve only lived in your current home for a few years
• You plan on staying in your home for 10+ years
• You’re in good financial standing with good credit
• You have cash on hand to cover upfront closing costs

Generally, if you can lower your monthly payment or shave time off your loan term, refinancing will save you money.

Use our custom quote builder to run the numbers and see if you can get a lower rate.

‍

Step 2: Choose your lender

Next, get quotes from a few different mortgage brokers and lenders, and select the one that’s right for you. When shopping for a lender, look for low rates, good reviews, and a high level of knowledge and availability. Consider working with a lender that specializes in refinance loans to get the best deal possible.

‍

Step 3: Apply for a refinance loan

Finally, it’s time to apply. With Clear, you can apply for a refinance loan online in about 30 minutes. We’ll lock your rate within 1-3 business days and close your loan in about 4-6 weeks. Everything can be done online, short of signing your closing documents.

FAQs about refinancing

Finally, let’s explore answers to some additional questions that people often ask about how to refinance a home.

What are the requirements to refinance a home?

No matter your reason for refinancing, there are requirements you must meet to be approved for a refinance loan, including:

• Minimum credit score
• Maximum loan-to-value ratio (LTV)
• Maximum debt-to-income ratio (DTI)
• Minimum assets (e.g., cash to cover closing costs)
• Verified income
• Appraisal requirements

The specific parameters will vary somewhat from lender to lender. If you have concerns about being able to meet the above requirements, our Loan Experts are happy to answer any questions and offer possible solutions.

What documents do I need to apply for refinance?

Prepare to apply for a refinance loan by gathering the following documents:

• Current home info (appraised value, property taxes, insurance)
• Current loan info (most recent mortgage statement)
• Personal info (contact info, social security number)
• Employment info (employer names and addresses for the past 2 years)
• Income verification (W-2s, recent pay stubs, tax returns)
• Asset info (bank accounts, mutual funds, stocks and bonds, life insurance, 401k)
• Co-borrower info (provide all of the above for co-borrower, if applicable)

What are the first steps to refinancing your home?

The first step is to do your homework and decide if now is a good time to refinance. Then, you’ll want to get quotes from three different lenders so you can compare your options and run the numbers.

With Clear, you can build a custom rate quote in about 30 seconds. If you like what you see, apply online using our secure application portal. Our tools make the process quick and easy, and you can reach out to us with any questions that pop up along the way.