Refinancing Step-by-Step

Rate Shopping

Mortgage rates fluctuate on a daily basis. Because refinancing your home makes sense only if your new rate would be significantly lower than than your current rate, it is important to be sure that rates are low enough to begin the process (see Resources section). When rates are at a beneficial level, it's time to start shopping. By contacting a bank or mortgage company and answering a few questions about your income and credit history, you can obtain Good Faith Estimates and Truth in Lending disclosures that will make comparing rates very simple. The most important number to take look at is the Annual Percentage Rate (APR), not the interest rate. The APR includes all closing costs and represents the true cost of the new mortgage.

The Application

When you have decided where to apply, you can do so over the phone, in person or by mail. The application will cover basic financial information, such as contact information, income, assets, current debts, information about your current mortgage and the property, and whether you would like to take cash out of your equity. Within three days of the application, you will be given a packet of disclosures that cover the specifics of the mortgage you applied for and the relevant laws and regulations. Review this documentation to make sure the loan satisfies your needs.


Once your application has been completed, your mortgage representative will turn it over to the underwriting department, where they will evaluate your application and decide whether the institution is willing to refinance your current mortgage. They will pull your full credit report and may require clarification or further documentation on some of your financial information. If this is the case, they will communicate with your loan representative, who will contact you. While you will most likely never have direct contact with underwriting staff, they are one of the most important groups who will handle your refinance.


When the underwriters approve your loan, they will send it to closing. Some financial institutions close their own loans, but many make use of title companies and their closing agents for the signing of final documents. After the documents have been prepared and sent to the title company, your representative will contact you to make an appointment with the closing agent. At the appointment, you will be given final disclosures covering the terms of your refinance and you will sign all necessary documents.


Your loan will not fund until three business days after you sign the documents because federal regulations give you the right of rescission, which means that you have three days to tell the bank or mortgage company that you have changed your mind and no longer wish to complete the deal. After the third business day, your new mortgage servicing company will pay off your old mortgage. If you requested to take cash out of your equity as part of the transaction, a check will be sent directly to you.