Set your goals

The first step in refinancing your home is deciding why you want to refinance and what you hope to get out of the process. Many people consider one factor when refinancing: a lower rate, but there are several reasons why someone may refinance their home, including:

  1. change your term,
  2. eliminate private mortgage insurance, or
  3. take advantage of the equity in your home.

Each option has potential benefits and caveats. A great way to examine your options is to use a mortgage calculator. Mortgage calculators can help you figure out payment terms, interest rate scenarios, and even debt consolidation scenarios so you can weigh your refinance options.

Know your credit score

Your credit score is one of the most crucial aspects of your home refinance. Your credit score affects your approval, rate, and term whenever you refinance. Frequently checking your credit score can help you stay on top and know what to expect. Likewise, it’s best to limit hard inquiries (also called pulls) and negative hits on your credit to have the best possible score.

Hard inquiries occur when you apply for a loan or line of credit; and the lender requests to look at your official credit report. Hard inquiries only affect your credit for a few months, but they stay on your credit report for up to two years. These negative score changes are why it is important to keep hard inquiries to a minimum when possible.

When you miss payments, these are reflected on your credit score as negative hits. One of the easiest ways to build and maintain credit is to stay on top of your payments. KTVAECU® offers free credit score monitoring. For more information on how to build and monitor your credit score, visit

Know your equity

The value of your home – the amount you owe your current lender = your equity.

Many lenders recommend reviewing how much equity is in your home before you even start the refinancing process. If your house has negative equity, meaning your house is worth less now than when you first started your mortgage, refinancing is usually not advised.  Luckily, homes typically increase in value and can be a source of funds to put toward home repairs or to consolidate large expenses, like credit card bills or student loans. This is known as a cash-out refinance. Knowing your equity is especially important if your goal is a cash-out refinance. An example of this would be if you owe $150,000 on the mortgage on a home worth $200,000. In this example, you would have $50,000 in equity.

Know your debt-to-income ratio

How much you earn each month – how much you owe = your debt-to-income ratio.

Your debt-to-income ratio is one of the key factors lenders check when reviewing a refinance application. The goal is to have the ratio as low as possible. There are many ways to lower your debt-to-income ratio, including:

  • transferring balances to lower interest
  • finding another source of income
  • paying off high-interest debt
  • controlling non-essential spending.

If you can get this number down by even just a few percentage points, you could see a much better outcome in your loan terms when you refinance.

Factor in all your costs
It’s essential to keep track of all your fees when refinancing your home loan. When you refinance, you will likely pay for the application, appraisal, credit check, origination fees, and just like your initial home loan, you will have to pay closing costs. These closing costs are typically between 2% to 6% of your loan amount. Even if you end up with a lower rate, it can take a few years to break even when you account for closing costs. Another fee to look out for is the prepayment penalty. Check to see if the lender holding your current mortgage charges a fee for paying your mortgage off early. If you have enough equity, you may be able to incorporate these costs into the new loan, increasing the principal.

Get quotes from multiple lenders

Different lenders offer different benefits. Research and get quotes from multiple lenders to make the best choice for you. Many experts recommend you get quotes from at least three separate lenders. It is crucial to review each lender’s offer and its caveats. For example, some lenders may offer a “no-cost refinance.” These may come with a higher interest rate to cover the closing costs. Once you decide your goals, you can research to find the best lender for YOU. Once you have found the right lender, “lock” your rate with them as soon as possible because mortgage rates can change daily.