Best Mortgage Refinance Companies

Refinancing a mortgage is a financial strategy that can offer significant potential benefits, including lower interest rates, reduced monthly payments, and the ability to tap into your home’s equity. The best mortgage refinance companies help homeowners take advantage of these and other benefits quickly and with minimal fees.

Read on to learn more about what the best mortgage refinancing companies offer and how you can take advantage of this strategy to improve your finances.

Tips for comparing the best mortgage refinance companies

In real estate finance, having the right mortgage refinance company can make all the difference. These companies help homeowners find the best financing options to lower their mortgage rates and monthly payments, potentially saving thousands of dollars annually.

Here are some tips to compare the best mortgage refinance companies:

  • Research company reputation. Look up reviews and customer feedback. Check the Better Business Bureau (BBB) to read applicable complaints and determine whether they were resolved to customers’ satisfaction.
  • Compare interest rates. Different companies help borrowers secure different interest rates. Compare these rates, but remember that the lowest rate may not be the best deal if fees are involved.
  • Understand fees and closing costs. Costs and fees can significantly affect how much you save by refinancing or whether doing so is economical. Ask each company for a detailed breakdown, so you know what to expect.
  • Explore loan types and terms. Some companies may only offer certain types of loans or repayment terms, which may or may not suit your needs. Finding a company that offers the options that work for you is critical.
  • Evaluate customer service. Read online reviews to gauge the company’s responsiveness and its willingness to answer your questions and provide clear, insightful information.

When considering a refinance, take the time to compare multiple companies and their offerings. By taking into account factors like interest rates, fees, loan types, and customer service, you can be sure to find a company that meets your needs and helps you get the most out of your new loan.

What are mortgage refinance companies?

Mortgage refinance companies are financial institutions that specialize in helping homeowners lower their monthly mortgage payments by refinancing their mortgages. Mortgage refinance companies offer a wide range of loan packages and options, allowing borrowers to customize the perfect plan for their needs. These companies provide all the necessary information and guidance to help borrowers make an informed decision about whether or not to refinance their mortgage.

Mortgage refinance companies offer various types of loans, including conventional, FHA, VA, and reverse mortgages. In addition to helping borrowers lower their monthly payments, these companies can also help them access more cash from their home equity or decrease the length of the loan term. Carefully research all aspects of a particular company’s offering before committing to a refinance.

How mortgage refinancing works

Mortgage refinancing is the process of obtaining a new mortgage to replace your existing one. Homeowners typically choose to refinance for a few key reasons, such as securing a lower interest rate or monthly payment, converting home equity into cash (cash-out refinancing), or changing their mortgage type or term.

Here’s a simple breakdown of how it works:

  1. Decide why you want to refinance. Are you aiming to reduce your monthly payments, shorten your loan term, switch from a variable-rate to a fixed-rate mortgage, or tap into home equity? Your answer will greatly impact which provider you work with and how the refinancing process progresses.
  2. Check your credit score and history. The better your credit score, the more likely you are to get a favorable interest rate. Ensure all information in your credit report is accurate, and take steps to improve your credit (like paying down debt) before you apply.
  3. Assess your home’s equity. If you’ve built up significant equity in your home, you’re more likely to qualify for refinancing. Lenders typically want homeowners to retain at least 20% equity after refinancing.
  4. Shop around for the best rates. Contact multiple mortgage lenders to compare their interest rates and loan terms. Doing so can help you find the best deal and get a feel for which companies are easy to work with.
  5. Apply for the new loan. Once you’ve chosen a lender, you’ll complete an application with information about your income, assets, and debts. Depending on how much you’re borrowing and your loan type, your lender may also order a home appraisal to determine your home’s current value. You’ll also need to request a payoff amount from your existing lender so your new lender can include it in your new loan closing.
  6. Close on your new loan. If your application is approved, you’ll close on the new loan. This will pay off any outstanding balance on your old mortgage. From that point forward, you’ll only make payments on your new mortgage.

Remember, while refinancing can provide financial benefits, it’s not the best solution for everyone. Consider closing costs and fees, which can easily range from 2% to 6% of the new loan amount. Also remember that refinancing resets the term on your loan, so you may be required to make payments longer than you would have otherwise.

Types of mortgage refinance

For homeowners thinking about refinancing, several options are available, each designed to meet diverse financial goals and scenarios. These include rate-and-term refinancing, cash-out refinancing, and cash-in refinancing. Understanding the differences between these options is critical to choosing the right one that works for you.

Here are some of the common types of refinancing:

Rate and term refinance

A rate and term refinance is a type of mortgage refinancing where a borrower uses a new loan to secure a different interest rate and/or term for their mortgage. In a rate and term refinance the principal amount of the home loan does not change. Instead, the new mortgage terms result in a better interest rate, new repayment period, and potential savings in monthly mortgage payments.

A rate and term refi is ideal for homeowners with a stable income, steady employment, and no plans to sell their homes soon. It can also be particularly beneficial for those who have taken steps to improve their credit since securing their original loan, as they are more likely to receive a lower interest rate. However, refinancing usually comes with upfront closing costs, so borrowers should weigh the associated costs and savings before deciding whether a rate and term refinance is right for them.

Cashout refinance

A cashout refinance is a home loan that allows homeowners to borrow more money than they owe on their existing loan, secured by equity they’ve built in their home since taking out the original mortgage. This option presents a great opportunity for homeowners to tap into the equity they have accrued in their homes and use that money to fund expenses, pay off high-interest rate debt, fund home renovations, or invest.

Like other types of refinancing, a cashout refi replaces an existing mortgage with a new, larger mortgage and distributes the difference to the borrower as a lump sum. This type of refinancing is best for people who have significant equity in their homes and are looking for a way to fund big-ticket expenses or those looking to consolidate debt into one manageable payment.

While cash-out refinancing can be a good option for some homeowners, it’s essential to understand that this type of loan does increase a homeowner’s loan-to-value and can increase the chances of default or foreclosure if it involves a higher interest rate or monthly payment.

Streamlined refinance

A streamlined refinance is a mortgage refinancing option that allows eligible borrowers to lower their interest rates and monthly payments without needing a property appraisal or income verification. Essentially, this type of refinancing utilizes existing programs from FHA, VA, USDA, and other government programs to streamline the refinancing process. It can also lessen the requirements of applying for a new home loan in certain circumstances.

A streamlined refinance is most beneficial for homeowners who have an existing loan through a government-sponsored program and want to take advantage of lower interest rates without going through the hassle of a traditional refinance. With a streamlined refinance, borrowers can reduce their monthly mortgage payments, save money over the life of the loan, and potentially pay off their mortgage sooner.

Renovation refinance

A renovation refinance is a unique option for homeowners looking to make significant renovations to their homes. Essentially, a renovation refinance allows a borrower to refinance their origination mortgage into a new loan that includes the renovation project’s cost. With a renovation refinance, homeowners benefit from a single monthly payment that includes both their mortgage payment and the cost of their renovation project, making it easier to manage their finances and avoid the hassle of dealing with multiple loans or creditors.

This type of refinancing can be an excellent option for homeowners looking to add value to their property, increase their overall equity, or improve their living conditions. Typically, the best candidates for a renovation refinance are those with significant equity built up in their property, good credit, and the financial means to take on a new mortgage payment that includes the cost of the renovation.

How much does it cost to refinance a mortgage?

Refinancing a mortgage typically costs between 2% and 6% of the loan amount. The total cost varies based on several factors, including the lender, loan type, and location. Here’s a breakdown of the potential costs:

  • Application fee: Some lenders charge an application fee ranging from $100 to $500.
  • Loan origination fee: This is what the lender charges for processing the new loan, usually between 0.5% and 1% of the loan amount.
  • Appraisal fee: Depending on the type of loan you’re applying for and the amount you’re borrowing, a lender may require a home appraisal to determine the current value of your home. This typically costs between $300 and $500.
  • Title and attorney fee: These are fees associated with the title search and contract review. They can vary greatly but expect to pay at least $500 to $1,000.
  • Inspection fee: Though rare in a refi, some lenders may require a home inspection, which can cost $300 to $500.
  • Prepayment penalty: If your existing mortgage has a prepayment penalty, you’ll have to pay this when you refinance. These penalties vary by lender and loan type but are typically a percentage of the remaining balance.
  • Closing costs: These are the costs associated with finalizing your loan, typically including a range of fees. On average, homeowners can expect to pay between 2% and 5% of the loan amount in closing costs.

Before deciding to refinance, it’s important to consider costs and determine whether they’re outweighed by the potential savings from a lower interest rate or reduced monthly payment. If you aren’t sure, you may want to contact a financial advisor or mortgage professional to help you understand the implications.

Pros and cons of mortgage refinancing

Like most types of loans, mortgage refinancing has both advantages and disadvantages. For example, while refinancing may help borrowers secure a lower interest rate, it also comes with upfront costs that may outweigh any potential savings. Make sure you understand these benefits and drawbacks before deciding to refinance.

Mortgage refinancing pros

  • Lower interest rate: The most compelling reason to refinance is often to secure a lower interest rate. This can significantly reduce your monthly mortgage payments and total repayment amount, saving you considerable money over the life of the loan. However, depending on when an original loan was taken out, it may not be an option if interest rates have increased.
  • Shorter loan term: Refinancing can enable homeowners to reduce their mortgage terms. For instance, if you initially took out a 30-year mortgage, you could refinance to a 15-year term. While this might increase your monthly payments, it can significantly reduce the total interest paid over the life of the loan.
  • Access home equity: If you have considerable equity in your home, refinancing can allow you to cash out some of this equity. This could provide you with a substantial lump sum of money, which you could use to cover significant expenses or invest for the future.
  • Switch to a fixed-rate loan: If you initially took out an adjustable-rate mortgage (ARM), you may face higher payments when your rate resets. Refinancing allows you to switch to a fixed-rate loan, providing the security of steady, predictable payments for the term of your loan.
  • Debt consolidation: If you have high-interest debts like credit cards or personal loans, refinancing your mortgage can provide a way to pay off these debts and consolidate them into one lower-interest loan. This can make managing your debts easier and save you money in interest payments.

Mortgage refinancing cons

  • Upfront costs: Refinancing a mortgage usually involves closing costs and other fees, which can be quite substantial. It’s important to ensure that the potential long-term savings outweigh these upfront costs.
  • Longer repayment period: When you refinance and extend the loan term, it means you’ll be in debt longer. Although refinancing can lower your monthly payment, it also can result in more total interest paid over the life of the loan.
  • Loss of equity: If you opt for a cash-out refinance, you’ll convert the equity you’ve built up in your home to cash. This can leave you with less cushion if the value of your property drops or if you plan to sell in the future.
  • Potential for higher interest rate: If your credit score has decreased since you took out your original mortgage, you may not qualify for better loan terms or a lower interest rate.
  • Penalties: Some mortgages have prepayment penalties if you pay off the loan early, which can happen when you refinance. It’s important to consider this cost when thinking about refinancing.
  • Risk of foreclosure: If you fail to make your new mortgage payments, you could lose your home.

When to refinance your mortgage

Refinancing your mortgage can be a great strategy, particularly in some instances. Some of these include:

  1. Interest rates have fallen. If the interest rates have decreased since you took out your original mortgage, it might be a good time to consider refinancing. Even a small drop in the rate can save you a considerable amount over the life of your loan.
  2. Your credit has improved. If your credit score has improved since you took out your original loan, you might be eligible for a lower interest rate.
  3. Your finances have changed. If you’re facing financial difficulties and struggling to make your monthly payments, refinancing to extend your loan term can result in lower monthly payments. On the other hand, if your financial situation has improved, you may want to pay off your mortgage faster by refinancing to a shorter-term loan.
  4. You need cash. If you’ve built up significant equity in your home and need cash for other purposes such as home improvements, investing, or funding education, you might consider tapping that equity with a cash-out refinance.
  5. You want more stability. If you have an adjustable-rate mortgage (ARM) and the introductory rate period is ending, you might want to refinance to a fixed-rate mortgage to avoid potential rate increases.

There are other circumstances when refinancing might make sense, including if you recently got married or divorced, finished a significant improvement project at your house, or have encountered other substantial changes in your financial situation. If you’re unsure if a refi is right for you, you can discuss your circumstances with a loan broker or financial advisor before deciding to move forward.

What you need to refinance your mortgage

You need to meet several requirements to refinance your mortgage, including a good credit score, a stable income, an acceptable debt-to-income ratio, and plenty of home equity. These factors impact your eligibility for refinancing and the potential terms and rates you may secure, which will determine whether refinancing is an economical option for you.

Here are some things you need before refinancing:

  • A clear financial objective: Before you start the refinancing process, you should clearly understand what you hope to achieve. Whether it’s to lower your monthly payments, shorten your loan term, or access some of the equity in your home, your goals will determine whether refinancing ultimately makes sense based on the rates and terms you can secure.
  • A good credit score: Your credit score plays a major role in determining your eligibility for refinancing. A good credit score increases your chances of securing a favorable interest rate. Therefore, it’s important to check your credit report for any inaccuracies that might negatively affect your score and take steps to improve your credit before applying.
  • An appraisal of your home’s equity: Assessing your home’s equity— the current market value minus what you still owe on your mortgage— is a critical step in refinancing. Most lenders prefer that homeowners retain at least 20% equity in their homes after refinancing. So, if you bought your home within the past few years or only made a small down payment, you may not have enough equity to qualify.
  • Income documentation: Lenders will require proof of your income to ensure you can repay your new loan. This typically involves providing recent pay stubs, tax returns, and bank statements.
  • Cash: Refinancing a mortgage involves several costs, including loan origination fees, appraisal fees, and closing costs. While some fees can be financed in the new loan, others may need to be paid upfront.

How often can you refinance a mortgage?

There is no legal limit on the frequency or number of times you can refinance a mortgage. However, some lenders require you to wait for a certain period after obtaining financing before getting a new loan. Additionally, some lenders may include prepayment penalties that make refinancing uneconomical. Even without prepayment penalties, each new loan comes with its own costs, so it generally doesn’t make sense to refinance more than once every few years unless rates fall considerably or home values increase drastically.

Frequently asked questions (FAQs)

Is it cheaper to refinance with current lender?

In certain cases, it can be cheaper to refinance with your current lender, as some lenders may offer discounts or waive certain fees for existing customers in an effort to keep their business. However, this isn’t always the case, and the terms offered by your current lender might not always be the most competitive. Therefore, it’s still very important to shop around and compare offers from different lenders to ensure you get the best deal.

Do you need an appraisal to refinance with the same lender?

In most cases, you’ll still need an appraisal to refinance with the same lender. However, there are certain instances where an appraisal might be waived, such as if you have a recent appraisal on file or qualify for a Streamline Refinance. As appraisal requirements can vary between lenders and specific loan programs, it’s always best to consult directly with your lender for its requirements.

At what point is it worth it to refinance?

Deciding when it is worth it to refinance a mortgage is largely subjective and depends on individual financial circumstances. However, a typical rule of thumb is that it could be worth considering if you can reduce your interest rate by at least 1% to 2%. Such a reduction could result in significant savings over the life of your loan.

Furthermore, refinancing could be a wise move if you plan to stay in your home for a significant amount of time, thereby allowing you to recoup the costs involved in the refinancing process. It could also be worth considering if you wish to switch from an adjustable-rate to a fixed-rate mortgage for more predictability in your repayments or if you want to tap into your home’s equity.

However, it’s crucial to factor in closing costs, applicable penalties, and the impacts on your overall financial goals and plans. Always consult a financial advisor or your lender to make an informed decision.

Which is not a good reason to refinance your mortgage?

Refinancing your mortgage for the sole purpose of investing in volatile or high-risk assets is generally not a good reason. While it might be tempting to tap into your home’s equity to fund these investments, it’s important to remember that your home is collateral for your mortgage. This means that if your investments don’t pan out as expected and you’re unable to make your mortgage payments, you could potentially lose your home.

Moreover, the costs associated with refinancing, such as closing costs and potential penalties for early payment of your existing mortgage, could further exacerbate financial losses if your investments don’t yield the expected returns. Therefore, it’s crucial to carefully evaluate the potential risks and consult a financial advisor before deciding to refinance your mortgage for investment purposes.

Does refinancing hurt credit?

Refinancing your mortgage can have a temporary impact on your credit score. When you apply for a refinance, the lender makes a hard inquiry on your credit report to assess your creditworthiness, which can cause a small, temporary dip in your score. Additionally, refinancing a loan means taking on a new loan and closing an old one. This changes the average age of your credit lines, which can also affect your credit score.

However, these impacts tend to be relatively minor and short-lived, and consistently making your new mortgage payments on time should help your credit score recover and potentially improve over the long term. It’s important to note that everyone’s credit profile is unique, so the impact of refinancing on your credit score may vary.

Is it hard to get approved for a refinance?

Getting approved for a refinance is not necessarily hard, but it does depend on a variety of factors, such as your credit score, income, employment status, debt-to-income ratio, the value of your home, and the amount of equity you have in it. Lenders will assess these factors to determine your ability to repay the loan. A high credit score, stable income, and low debt-to-income ratio can enhance your chances of approval.

Similarly, a significant amount of equity in your home can be favorable. However, getting approved for a refinance could be more challenging if you have poor credit, unstable income, high debt, or little equity in your home. Regardless of your situation, it’s always a good idea to review your financial situation, explore various lenders, and consult with a mortgage advisor to understand your refinancing options and the likelihood of approval.