- A refinance pays off your current mortgage with a new loan on new terms.
- Three main paths: rate-and-term, cash-out, and streamline (for existing FHA or VA loans).
- Every refinance has costs, so the question is always how long it takes to earn them back.
The three refinance paths
| Path | What changes |
|---|---|
| Rate-and-term | Your rate, your term or both. The balance stays about the same with little or no cash back. |
| Cash-out | A larger loan replaces yours and you keep the difference. The whole balance moves to the new rate. |
| Streamline (FHA or VA) | A new loan in the same program, usually at a lower rate, with lighter paperwork and often no appraisal. |
Good reasons to refinance
- Rates are meaningfully below yours, and you'll keep the home past the break-even point.
- Moving from a 30-year to a 15- or 20-year term to pay the home off sooner.
- Dropping mortgage insurance once you have enough equity, often by moving an FHA loan to conventional.
- Rolling a HELOC or second mortgage into one fixed payment.
- Taking cash out for a large, known expense when the new rate still makes sense.
Cash-out refinance
A cash-out refinance turns equity into cash by replacing your loan with a bigger one. On a one-unit primary home, conventional cash-out goes up to 80% loan-to-value (75% on a one-unit rental), FHA up to 80%, and VA up to 100% under VA rules, with lenders sometimes capping lower.
If your current rate is lower than today's, compare a HELOC or home equity loan first. They leave your low-rate first mortgage alone and only price the new money.
The break-even check
Divide the total cost of the refinance by the monthly savings. That's how many months it takes to come out ahead. Example: $6,000 in costs and $200 a month in savings breaks even in 30 months. If you plan to move or refinance again before then, it probably isn't worth it.
I also compare total interest over the time you expect to keep the loan, not just the payment, because stretching a balance back out to 30 years can lower the payment while raising the total cost.
What to expect
Most refinances close in about 30 to 45 days; streamlines can be faster.
- Quick review of your current loan, goal and numbers.
- Application and documents: pay stubs or other income, bank statements, current mortgage statement and homeowners insurance.
- Appraisal or valuation waiver, depending on the program.
- Underwriting, title and final approval.
- Closing. On a primary home there's a 3-business-day right to cancel before a cash-out or new-lender refinance funds.
The trade-offs
- Closing costs are real money, even when they're rolled into the loan.
- Restarting a 30-year term can raise your total interest even with a lower rate.
- Cash-out moves your entire balance to today's rate, not just the cash you take.
Frequently asked questions
How much does it cost to refinance?
It depends on the loan size, lender, title and whether you pay points. I show you a full estimate before you commit and run the break-even with you.
How soon can I refinance after buying?
Rate-and-term refinances can often happen soon after closing. Cash-out generally requires about 6 to 12 months on title depending on the program; FHA and VA streamlines require 210 days and 6 payments.
Should I refinance or get a HELOC?
If your current rate is lower than today's, a HELOC or home equity loan usually costs less because your first mortgage stays put. If today's rate is lower, a refinance can win.
Related loan programs
Learn more
Rates and program availability vary by state, property and lender. This is not a rate quote, a credit decision, an offer or a commitment to lend. Program restrictions apply. Larz Martin NMLS #2026245 · CA DRE #02241936 · Lumin Lending, Inc. NMLS #2716106 · CA DRE #02291443. Equal Housing Opportunity.
