How Does Refinancing a Home Loan Work?

A typical mortgage refinance is similar to the process for your original mortgage.
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Refinancing a home loan is a common financial process for homeowners. When interest rates drop, homeowners look to take advantage of lower monthly payments and interest savings over the life of their loans. The task of getting a new home loan is relatively similar to getting your initial mortgage.


Typically, you begin the process with a meeting or consultation with your mortgage loan consultant. She helps you figure out whether a refinance is sensible given the potential savings and possible monthly payment reduction. She also gives you an idea of the closing costs you pay to get the new loan. If you agree that the savings on a new loan justify the costs to refinance, you complete the application paperwork to lock in your rate and terms.

Materials Submission

Once your loan processor reviews your application and materials, she may have additional questions or request supporting documentation to prepare your file for underwriting. W-2 income statements, tax filings, and other income and asset documentation are usually required. Once your processor has everything necessary to submit your application file, she lets you know and sends it to underwriting for review.

Approval Decision

The underwriting process for a refinance usually takes two to three weeks depending on the volume of loan applications under review. The underwriter analyzes your application materials and credit history. She may request additional items from the lender or you as the prospective borrower. Once the loan approval is complete, you receive a loan packet that includes your closing settlement statement, contractual terms of the new loan, and information on your interest rate and monthly payments.


At the time of closing, you meet with your loan consultant and often a lawyer hired to complete the mortgage and deed filings with the county. You sign closing paperwork, which usually includes several bank disclosure statements as well as the final settlement statement. You also bring funds to make any out-of-pocket payments toward closing costs. Often, on a refinance, your mortgage consultant can help you set up the refinance in a way that results in little to no out-of-pocket costs. By paying discount points or extra upfront fees, you can often build the closing costs into the new loan. A loan settlement date follows shortly after you sign the closing papers. This is the date on which the new loan pays off your prior mortgage.

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