How Homeowners Can Get Ready for Refinancing
Refinancing a home is often thought of as a wise financial move, but 2025 is already proving to be a very different year. As a result, many homeowners may be on the fence about refinancing a mortgages right no—we discussed several things homeowners should know in this part one article, and here, we go over even more things you should know.
After you’ve determined why you plan to refinance and what you hope to get out of the process, and you’ve stayed on top of investment trends over the course of the year, and you’ve improved your credit, consider the following points in order to know if refinancing is right for you this year.
Determine Your Home’s Current Value
Your home’s value will affect how much you can borrow, especially if you’re seeking a cash-out refinance. With the real estate market in 2025 differing from previous years, you will need to check recent comparable sales in your area or get a professional appraisal to accurately determine your home’s current value.
Why is this information important? Because if your home’s value has increased significantly since you closed on it, then you may qualify for better terms. Conversely, if property values have declined in your area, then you may need to reconsider refinancing or adjust your expectations.
Don’t Forget About the Costs of Refinancing
Refinancing your mortgage isn’t free. Just like when you closed on your current mortgage, there are closing costs and fees included, and these can range from 2% to 6% of your new loan’s amount. Common expenses accrued in your refinancing will include:
- Loan origination fees
- Appraisal fees
- Title insurance
- Prepayment penalties (if applicable)
- Credit report fees
It is also important to know that some lenders may offer what they call a “no-closing-cost refinance,” but this usually results in a slightly higher interest rate for the homeowner. To help make sure that refinancing makes good financial sense, make sure to calculate your break-even point, which is the time it takes for your savings to cover the cost of refinancing.
Prepare the Necessary Documents Before Applying
Refinancing requires similar documentation to when you first applied for a mortgage. Expect your lender to request the following:
- Recent pay stubs (or profit and loss statements if self-employed)
- W-2s or tax returns (typically for the last two years)
- Bank statements (last 2–3 months)
- Current mortgage statement
- Proof of homeowners insurance
If you are serious about refinancing in 2025, then having these documents prepared and ready before you apply can help speed up the approval process.
Be Aware of the Potential Pitfalls of Refinancing Your Home Loan
Refinancing can offer great benefits for most homeowners, but it doesn’t come without its fair share of risks. When refinancing your home loan, you should be cautious of:
- Extending the loan term too long, as this will end up costing you more in interest over the life of your loan.
- Overestimating your home’s value, as this can result in a loan amount that is lower than you expected.
- Not considering your break-even point, as this could mean that the savings you get don’t justify the refinance.
- Triggering a prepayment penalty from your current lender, as this could offset any potential savings you had hoped to enjoy.
Act at the Right Time
Timing is vital when you are in the market to refinance your home. But when is the best time to go for it?
The best time to refinance is when you can lock in a low rate that aligns with your financial goals. If mortgage rates are expected to rise later in 2025, then refinancing sooner might be the wiser move. However, if rates are predicted to drop further, then waiting a little longer may be beneficial. The best thing you can do is work with a trusted mortgage professional. They can analyze the best timing for your unique refinancing situation.
