Refinancing Conventional Loan: A Comprehensive Guide

Welcome to our guide on refinancing conventional loans. If you’re a homeowner struggling with payments and looking for a way to reduce your monthly mortgage payments, refinancing your conventional loan can be a viable option.

In this article, we’ll explore the ins and outs of refinancing conventional loans, including what it is, how it works, and why it might be the right choice for you. We’ll also cover some of the common misconceptions and frequently asked questions about refinancing conventional loans.

What is Refinancing Conventional Loan?

Refinancing a conventional loan involves taking out a new loan to pay off your existing mortgage. The new loan often has new terms and interest rates, which can help you save money by reducing your monthly payments, lowering your interest rate, or shortening your loan term.

Generally, refinancing is beneficial if the new loan offers you more favorable terms than your current one. It’s also a good choice if you’re looking to lower your monthly payments, reduce your interest rate or change the length of your loan.

Why Refinance a Conventional Loan?

There are several reasons why you might want to refinance your conventional loan. Here are a few:

Reasons to Refinance
Lower Interest Rate
If the interest rate on your existing mortgage is higher than the current market rate, refinancing can help you lower your monthly payments and save money over time.
Shorten Loan Term
If you have a long-term mortgage but can afford higher monthly payments, refinancing to a shorter-term loan can help you pay off your mortgage earlier and save money on interest.
Cash-out Refinance
If you have equity in your home, you can refinance to take out cash for things like home improvements, debt consolidation, or education expenses.
Switch to Fixed Rate
If you have an adjustable-rate mortgage (ARM) that you want to convert to a fixed-rate loan, refinancing can offer more stability and predictability of your monthly payments.
Remove Mortgage Insurance
If you’ve built up enough equity in your home, refinancing can help you remove costly private mortgage insurance (PMI) from your monthly payments.

Factors to Consider Before Refinancing

Refinancing can be a great option for homeowners who want to save money on their mortgage or reduce their monthly payments. However, before you make a final decision, it’s important to consider the following factors:

Current Interest Rates

One of the biggest advantages of refinancing is taking advantage of lower interest rates. Before refinancing, make sure to compare current interest rates with your existing mortgage to see if there’s a significant difference.

Your Credit Score

Your credit score can have a significant impact on your ability to refinance and the interest rate you receive. Generally, a higher credit score means a lower interest rate. Make sure to check your credit score before applying for refinancing.

How Long You Plan to Stay in Your Home

If you plan to move soon or sell your home, refinancing may not make sense. It’s important to consider how long you plan to stay in your home and whether refinancing will save you enough money to make it worth the upfront costs.

Refinancing Costs

Refinancing comes with closing costs such as fees for appraisals, title searches, and loan origination. Make sure to factor in these costs before making a decision.

Your Financial Goals

Finally, consider your overall financial goals and whether refinancing aligns with them. For example, if you want to pay off your mortgage quickly and have the ability to make higher monthly payments, refinancing to a shorter-term loan may be a good option.

How Refinancing Conventional Loan Works

Refinancing a conventional loan works by taking out a new loan to pay off your existing mortgage. The new loan often has new terms and interest rates, which can help you save money by reducing your monthly payments, lowering your interest rate, or shortening your loan term.

Here are the steps involved in refinancing a conventional loan:

1. Determine Your Goals for Refinancing

Before you begin the refinancing process, determine your goals for refinancing. Do you want to lower your monthly payments, shorten your loan term, or change the interest rate or loan type? Knowing what you want to achieve can help you find the right refinance option.

2. Shop Around for Rates and Lenders

Once you know your goals, start shopping around for rates and lenders. Compare interest rates, fees, and terms from multiple lenders to find the best deal.

3. Apply for Refinancing

After you’ve found the right lender, apply for refinancing. You’ll need to provide documentation such as tax returns, pay stubs, bank statements, and other financial information.

4. Wait for the Appraisal

Once you’ve submitted your application, the lender will order an appraisal of your property to determine its value. The appraisal helps the lender understand the amount of equity you have in your home, which can impact the terms of your new loan.

5. Close on Your New Loan

If you’re approved for refinancing and agree to the new terms, you’ll need to close on your new loan. You’ll sign new loan documents, pay closing costs, and your old mortgage will be paid off.

Common Misconceptions About Refinancing Conventional Loan

There are several misconceptions about refinancing that homeowners should be aware of before making a decision. Here are a few:

Refinancing Always Saves Money

While refinancing can save you money on your monthly payments and interest rate, it’s not always the best financial decision. Make sure to factor in closing costs and other fees before making a final decision.

You Can’t Refinance with Bad Credit

While a higher credit score can make it easier to refinance and receive lower interest rates, it’s still possible to refinance with bad credit. However, you may need to pay a higher interest rate or meet other requirements.

You Can’t Refinance with Negative Equity

Negative equity, or when you owe more on your mortgage than your home is worth, can make refinancing difficult. However, there are still options available to homeowners with negative equity, such as the Home Affordable Refinance Program (HARP).

FAQ About Refinancing Conventional Loan

1. What is the difference between a conventional loan and an FHA loan?

A conventional loan is a mortgage that is not backed by the government, while an FHA loan is insured by the Federal Housing Administration.

2. Can I refinance my conventional loan to an FHA loan?

Yes, you can refinance your conventional loan to an FHA loan. However, you’ll need to meet certain requirements, such as having a minimum credit score and a certain amount of equity in your home.

3. How much can I save by refinancing my conventional loan?

The amount you can save by refinancing your conventional loan depends on several factors, such as your interest rate, loan term, and closing costs. Use a refinancing calculator to estimate your potential savings.

4. How long does it take to refinance a conventional loan?

The refinancing process typically takes between 30 to 45 days. However, it can take longer depending on the lender, amount of documentation required, and other factors.

5. Can I refinance my conventional loan with the same lender?

Yes, you can refinance your conventional loan with the same lender. However, it’s still important to shop around and compare rates from multiple lenders to ensure you’re getting the best deal.

6. Can I refinance more than once?

Yes, you can refinance more than once. However, it’s important to consider the costs and benefits of refinancing each time to ensure it aligns with your financial goals.

7. What are the fees associated with refinancing a conventional loan?

Refinancing fees can vary but typically include things like application fees, appraisal fees, title search fees, and loan origination fees. Be sure to read your Loan Estimate and Closing Disclosure for a detailed breakdown of costs.

8. Can I skip mortgage payments when refinancing my conventional loan?

You generally cannot skip mortgage payments when refinancing your conventional loan. You’ll need to continue making payments on your existing mortgage until your new loan is finalized.

9. Will my credit score be impacted by refinancing my conventional loan?

Applying for refinancing can temporarily lower your credit score due to the hard inquiry on your credit report. However, if you make payments on time and stay current with your new loan, your credit score should improve over time.

10. How can I know if refinancing my conventional loan is the right choice for me?

Before refinancing, consider your financial goals, current interest rates, closing costs, and other factors. Use a refinancing calculator and speak with a trusted financial advisor to determine if refinancing is the best financial decision for you.

11. Can I refinance if I have a second mortgage?

Yes, you can refinance if you have a second mortgage. However, you’ll need to coordinate with both lenders to ensure a smooth refinancing process.

12. Can I still refinance if I’ve missed mortgage payments?

You may still be able to refinance if you’ve missed mortgage payments, but it can be more difficult. Speak with your lender and explain your situation to see what your options are.

13. Can I use a cash-out refinance to pay off debt?

Yes, you can use a cash-out refinance to pay off debt. However, it’s important to use the money wisely and create a plan to pay off the new loan in a timely manner to avoid further debt.


Refinancing your conventional loan can be a great way to save money on your mortgage, lower your monthly payments, or pay off your loan sooner. However, it’s important to do your research, compare rates, and consider your financial goals before making a final decision.

Thank you for reading our guide on refinancing conventional loans. We hope it has been helpful and informative. If you have any questions or would like to speak with a trusted financial advisor, please don’t hesitate to reach out.


The information in this article is for educational purposes only and should not be considered financial advice. Before making any financial decisions, please speak with a trusted financial advisor.