Refinancing Your Mortgage: A Complete Guide for 2025

If you’re looking to buy a home this year, you’ve probably been closely monitoring current interest rates. Many homebuyers are waiting for the Fed to slash rates before making an offer. 

Some current homeowners are also watching interest rates, hoping to refinance their mortgages. Sound familiar? This guide is for you! 

Below we’ve answered some of the most common questions about mortgage refinancing and busted a few myths. We’ve also asked our mortgage lending partners at GreenState Credit Union what to expect if you plan to refinance in 2025.

What’s Up (or Down) with Interest Rates?

At Urban Acres, our agents field a lot of questions about the state of the housing market. Many of those questions revolve around interest rates. Though we don’t have a crystal ball to predict when rates will fall and how sharply, we can help you prepare today. That way when interest rates drop, you’ll be ready to snap up a better rate.  

In Iowa, the average 30-year mortgage rate hovers at around 7 percent (as of January 2025). This is nearly four percentage points higher than in January 2022, when mortgage rates fell during the COVID pandemic. Later that year inflation surged, driving interest rates to 7.08 percent in October.

Source: Freddie Mac PMMS

Borrowers took advantage of a brief dip in interest rates during the third quarter of 2024. In September 2024 when interest rates dropped to 6.5%, nearly 2.5 million borrowers could refinance and save at least 0.75% on their interest rates. But rates quickly rebounded, returning to where they are today.

Will interest rates fall in 2025? Most economists agree that we can expect to see a modest decline. However, there’s a slim chance rates will fall much below 6 percent. Experts predict rates will hover between 6.25% and 6.75% for much of 2025. In 2026, some forecasts suggest a potential drop to the 5.75% to 6.25% range. But this depends on economic conditions, inflation trends, and Federal Reserve policies. 

This begs another question: Is it worth refinancing when you can only reduce your rate by a percentage point or less? Maybe. The answer depends on your situation and financial goals. 

While interest rates can influence your decision, they should never be the determining factor.

How Do You Know When to Refinance? 

Our lending partners at GreenState Credit Union consider three factors when someone is thinking about refinancing their mortgage: 

• Interest rate trends
• Cost vs. savings 
• Expected time in the home 

Lenders always have a pulse on interest rates. If they anticipate rates are falling, they may recommend waiting if the borrower is comfortable with the risk. If waiting isn’t an option, the GreenState mortgage lending team explores refinancing—either through a no-closing-cost refinance or standard refinance, depending on how much the borrower can save. 

Borrowers should also make sure the refinance makes financial sense. For example, if the cost to refinance is $2,000, but the borrower only saves $15 every month, it’s probably not worth the time and expense. Some homeowners refinance to transition from an adjustable-rate mortgage (ARM) to a fixed-rate mortgage, which can save borrowers money over time as rates fluctuate. 

A good rule of thumb: Aim to recoup the refinance cost within 12 to 24 months. 

Finally, you’ll want to consider how long you plan to stay in your home. If you plan to sell or pay off your loan within six months, refinancing might not be worth it. Even if you save $100 every month, you won’t stay in the home long enough to recoup the refinance cost. A no-closing-cost refinance might be the best option in this scenario.

5 Common Myths about Refinancing Your Mortgage

Mortgage lenders have heard it all when it comes to refinancing. Refinancing can be a powerful financial tool that saves homeowners thousands of dollars over the life of their loan. But sometimes the misconceptions and half-truths can leave even the most savvy homeowners feeling confused and hesitant.  

Let’s separate fact from fiction! Here are some of the most persistent myths, courtesy of the mortgage lending team at GreenState.

Myth: Refinancing will damage my credit. 

Refinancing does require a credit check. However, the impact on your credit is typically minimal and temporary. The long-term financial benefits usually outweigh any short-term dip in your credit score. Within a few months, many people see their credit scores bounce back. 

Myth: You can only refinance once. 

False! There’s no limit on the number of times you can refinance. Your financial wellness is the most important factor—refinancing only makes sense if market conditions are right and if the decision aligns with your financial goals. As long as you qualify, you can refinance again when it makes sense. 

Myth: There’s a penalty for paying off my loan early. 

Most conventional loans don’t have prepayment penalties. But it’s still a good idea to verify this before you refinance your mortgage. Your mortgage lender can review the terms of the loan with you to clarify any potential fees. 

Note: Prepayment penalties for conventional mortgages issued after 2014 are limited to one to two percent of your loan, and they only apply to the first three years of your loan term. 

Myth: Refinancing will increase my property taxes.

Your home’s assessed value, not your mortgage, determines your property tax. Refinancing has no impact on your tax assessment. 

Myth: There’s a minimum waiting period before I can refinance again. 

Some loan programs like FHA loans, VA loans, and USDA loans have specific guidelines. This is called the ‘seasoning period’ (a term completely unrelated to cooking). In most cases, you don’t have to wait a set amount of time before refinancing a conventional loan.

Mortgage Refinancing FAQs 

What is the cost to refinance a mortgage? 

Generally, you can expect to pay anywhere between 2% to 6% of your loan amount. For example, if you’re refinancing a $400,000 loan, your refinancing costs will likely range from $8,000 to $24,000. 

These costs include:

• The loan origination fee 
• Appraisal fee
• Title search and insurance 
• Prepaid taxes 
• Underwriting fees
• Credit report fees

What are the benefits of refinancing? 

Most people refinance for one of these reasons: 

• To lower their interest rate 
• To reduce their monthly mortgage payment 
• To shorten their loan term 
• To switch from an adjustable-rate mortgage (ARM) to a fixed-rate loan 
• To tap into their home equity 
• To eliminate private mortgage (PMI) payments 
• To save money over the life of their loan 

Not everyone who refinances their mortgage will reap the same benefits. That’s because your financial situation is unique. Remember, what makes sense for another borrower might not make sense for you.

How long does the refinance process take? 

For conventional loans, the average time to refinance a mortgage is about six weeks. Certain factors can speed up or slow down that process. 

If you work with a lender that offers electronic income and asset verification, you can shave off some time. But other variables like your home appraisal are mostly beyond your control.

What types of refinance options are available? 

These are some of the most common refinancing options. You’ve probably heard of at least a few. 

• Rate-and-term refinance: The most common type of mortgage refinance that allows you to change your interest rate or loan term. 
• Cash-out refinance: Borrowers can tap into their home’s equity, taking out a larger loan and receiving the difference in cash for things like home improvements and debt consolidation. 
• Cash-in refinance: This is when a borrower makes a lump-sum payment to reduce their loan balance, ideally lowering their loan-to-value ratio and securing better loan terms. 
• No-closing-cost refinance: To avoid upfront closing costs, borrowers roll these costs into their new loan balance or accept a slightly higher interest rate. 
• Streamline refinance: This refinance option applies to FHA, VA, and USDA loans and offers a faster process with less paperwork and no appraisal required. 
• Consolidation refinance: Borrowers can combine multiple debts into a single loan, securing an interest rate that’s often lower. 
• Reverse mortgage: This option is only available to homeowners over the age of 62. They can borrow against their home equity and receive regular cash payments. 

What documentation do I need for refinancing? 

To start the mortgage refinance process, you’ll want to collect these documents:

1. Proof of income (two most recent pay stubs, W-2 or 1099 forms from the previous two years, and federal tax forms from the previous two years)
2. Bank statements for all accounts from the past two months
3. Statements for investment and retirement accounts
4. Recent mortgage statement 
5. Homeowners insurance declaration page
6. Property tax statement 
7. Copy of your property’s deed
8. Driver’s license or government-issued ID 
9. Authorization for credit reporting 
10. Names and addresses of your employers from the past two years 
11. Proof of other income (e.g., rental income, alimony) 

If you’re self-employed, you’ll also want to provide profit and loss statements and your business tax returns.

Can I refinance with bad credit? 

It might be more challenging, but it’s still possible. Most lenders want a credit score above 620. However, you still have options if your credit score is less-than-ideal. An FHA streamline refinance can be an option if you currently have an FHA loan. 

Keep in mind that to refinance with a lower credit score, you might have to settle for higher interest rates or less favorable loan terms.  

Do I have to refinance with my current lender? 

No! Choosing the right lender for your refinance is just as important as when you purchase your home. Refinancing isn’t a one-size-fits-all process—every borrower’s situation is unique, and the right lender will tailor options to fit your needs. 

What should you look for in a mortgage lender? Choose a knowledgeable lender who prioritizes your financial goals, whether you’re refinancing to lower your rate, adjust your loan term, or access home equity. A good lender will help you navigate the process smoothly and make sure you get the best possible terms. 

Your Trusted Real Estate Partner

Just like the lender you choose matters, the same is true about your REALTOR®. If you’re looking to refinance, we have trusted lending partners to help make the process painless. 

And if you’re ready to buy or sell a home, we’re at your service! We know the market feels a little unpredictable right now, but our agents would love to help you navigate it. Even if you just want to talk to someone who knows local real estate, don’t hesitate to reach out. We’ll prepare you to dive into the market whenever you’re ready.