What Does Refinancing Your House Mean?

Have you been wondering, should I refinance my house? Refinancing your house means taking out a new mortgage on your home to replace the old one. This is done for a number of different reasons. The factors involved include the current interest rates, closing costs, and the amount of time you intend to stay in the house.

It can take a long time to recoup the costs involved with refinancing. Knowing whether it’s worthwhile involves calculating how long it will take to get back the closing costs with an improved mortgage interest rate.

Top Reasons People Refinance Their Houses

Cashing out equity

In markets where a house has appreciated significantly, people with houses can refinance, taking out cash to make improvements to their homes.

This type of refinancing is known as a cash-out refinance loan. It means replacing your current mortgage with a larger mortgage, then taking the difference between the two in cash.

You can use the money in any way that you like. Some of the most common uses include, but aren’t limited to:

  • Home renovation. People often refinance their houses to make home improvements. This has the bonus of increasing your home’s value so that you receive a better price when you sell it.
  • Investing in yourself or another family member can be essential. Perhaps you want to go to college, send a child to university, or would just like to take a course that can boost your salary. Whatever the reason, education is often a great reason for refinancing your house.
  • Make an investment. You can take money out of your house and invest it so that it makes you more money. Remember that if you are investing in stocks or similar, these investments come with a certain amount of risk, and you should always speak with a professional who can advise you appropriately.
  • Start a business. If you would like to start a business but don’t have the money set aside to open it, refinancing your house is a great solution.

You should consider the rate of return for however you spend the money. Home improvements that increase the value of your home or starting a successful business will have a higher rate of return than a month-long vacation to somewhere tropical.

Lowering mortgage rates

Refinancing your house can allow you to lower your mortgage rate. You might change the type of loan that you have, exchanging an adjustable-rate loan with a fixed-rate one or exchanging a 20-year loan with a 10-year one.

It’s possible to reduce the interest rate on your mortgage if your credit has improved since you took out the original mortgage, the value of your house has gone up, or the mortgage market has improved since you took out your mortgage.

If you did not shop around when you took your current mortgage and are paying a higher interest rate than you could be, refinancing means you can rectify this.

Speed up mortgage repayment

Some people refinance their houses so they can speed up how fast they pay back their mortgages. They might have a 30-year mortgage and want to exchange it for a 10-year loan. This will also result in paying less interest over the length of the mortgage.

This often happens when someone has a greater income than when they bought the house. They can afford to take a bigger chunk out each month.

Refinancing to a fixed-rate mortgage

If you believe your interest rate may increase, and you intend to keep your house for more than a few years, you should consider refinancing.

Swapping your adjustable-rate mortgage with a fixed-rate mortgage locks you into the current interest rate, helping you to avoid additional costs due to rising rates.

Refinancing Process

The refinancing process is similar to the homebuying process. Here are the steps that you need to go through:

1. Set goals

The first part of the process involves establishing a goal. How will this new loan benefit you? What type of mortgage would work best with your financial situation (both current and for the length of the mortgage)?

You can use a refinancing calculator to help you estimate whether refinancing can help you to save cash.

Your credit rating is a crucial element of whether your new mortgage will be higher or lower than the previous one. If you see that your credit is not as good as it was, take steps to improve your score before refinancing.

2. Submit a mortgage application

Once you have set your goals, it’s time to look around for the best rate by asking for quotes from different lenders. Many lenders offer online mortgage applications so you can get started right from home.

3. Underwriting and appraisal

After you have found a lender and submitted an application for your new mortgage, your loan officer will start the process of underwriting your new mortgage. This involves verifying your financial information and the details about your home. Homeowners often have to pay for these costs.

The appraiser will give you an estimate of how much your home is worth. If this is less than you expected, you can stop your application or decrease the mortgage amount.

4. Closing

When you are refinancing, you have a three-day waiting period that gives you an opportunity to change your mind about the new mortgage. Go through the mortgage terms very carefully to make sure everything is as it should be.


Hopefully, reading this article has given you some answers to the question, should I refinance my house, and some next steps if you’ve decided to go forward with refinancing.

Solarity Credit Union loves helping homeowners refinance with ease. Their simple online process and available Home Loan Guides take the worry out of refinancing and allow you to effortlessly navigate it.

If you’re in Washington State, contact them to find out how their team of experts can guide you through the refinancing process so you can get as much value as possible from your property.


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