A refinance replaces your current mortgage with a new one. It makes sense when the savings recover your closing costs within a timeframe you're comfortable with, or when you need cash, want to remove mortgage insurance or change loan type. Team Kristen runs the break-even math before you commit.
Refinance types
- Rate-and-term. Change your rate, term or both, with no cash taken out beyond limited amounts allowed by the program.
- Cash-out. Conventional and FHA cash-out on a primary residence is capped at 80% loan-to-value. VA rules allow up to 100%, though many lenders cap lower.
- FHA streamline. For existing FHA loans; reduced documentation and usually no appraisal. Requires at least 210 days since closing, six on-time payments, and a net tangible benefit.
- VA IRRRL. For existing VA loans; same 210-day and six-payment seasoning, and the new loan must lower your rate or move you from an adjustable to a fixed rate, among other tests.
- FHA to conventional. With enough equity, this can remove FHA mortgage insurance that would otherwise last the life of the loan.
The break-even test
Divide total refinance costs by monthly savings. If costs are $6,000 and the payment drops $250, break-even is 24 months ($6,000 ÷ $250). If you expect to stay longer than that, the refinance pays off; if not, it usually doesn't.
Common questions
How much equity do I need to do a cash-out refinance?
For a conventional or FHA cash-out on a primary home, the new loan can be up to 80% of the appraised value, so you keep at least 20% equity after the cash-out.
How soon can I refinance an FHA or VA loan?
FHA streamline and VA IRRRL require at least 210 days since your current loan closed and six monthly payments made.
Can I remove PMI without refinancing?
Often, yes. On a conventional loan you can request cancellation when your balance reaches 80% of the original value, and it ends automatically at 78% if you're current. A new appraisal showing more equity may allow earlier removal under your servicer's rules.