Conventional Loan Refinance: How It Works, Requirements, & Rates

How a Conventional Refinance Works

Refinancing your conventional loan replaces your existing mortgage with a new one, typically to secure better terms. Here’s the step-by-step process:

1. Apply for the new loan: Submit your application with income, credit, and property information.
2. Get a home appraisal: Your lender orders an appraisal to confirm your home’s current value. (An appraisal waiver can be granted with proper automated underwriting system (AUS) approval)
3. Review loan terms: Compare your new rate, payment, and terms against your current mortgage.
4. Close on the new loan: Sign documents and pay closing costs to finalize your refinance.

The refinance process changes your interest rate, monthly payment, and potentially your loan term. However, your property ownership and home address stay the same. Also consider the current mortgage refinance limits and housing market conditions as they can impact your refinancing options and timing.

Conventional Loan Refinance Options

You have two main paths for refinancing your conventional loan, each designed for different financial goals. 

Rate-and-Term Refinance

A rate-and-term refinance adjusts your mortgage’s interest rate, loan term, or both without taking cash from your home’s equity. This option works well if you want to lower your monthly payments, secure a better interest rate, or pay off your home faster. 

You might choose this refinance type to switch from an adjustable-rate to a fixed-rate mortgage or eliminate private mortgage insurance once you reach 20% equity.

Cash-Out Refinance

A cash-out refinance replaces your current loan with a larger mortgage, giving you the difference in cash at closing. This option is ideal if you need funds for home improvements, debt consolidation, or other major expenses. 

You can use a cash-out refinance calculator to estimate how much cash you could receive based on your home’s value and remaining mortgage balance.

Benefits of Refinancing a Conventional Loan

Refinancing your conventional loan can deliver several financial advantages depending on your situation:

• Lower monthly payments: Secure a reduced interest rate or extend your loan term.
• Shorter payoff timeline: Switch to a 15-year term to pay off your mortgage faster.
• Access to cash: Tap into your home’s equity for large expenses or investments.
• Better loan stability: Move from an adjustable-rate to a fixed-rate mortgage.
• Eliminate PMI: Drop private mortgage insurance once you reach 20% equity.
• Debt consolidation: Use cash-out refinancing to pay off high-interest debt.

Conventional Loan Refinance Requirements

Meeting conventional loan refinance requirements ensures you qualify for the best available terms. Here’s some basic qualification criteria:

• Credit score: Most lenders require a minimum 620 credit score for conventional refinancing.
• Debt-to-income ratio: Keep your DTI below 43% to qualify for most programs. (A higher DTI can be accepted with an AUS approval from DU or LPA)
• Employment history: Show steady income with at least two years of employment or self-employment verification.
• Home equity: You need at least 3-20% equity in your property to refinance. (Conventional loans can be rate-and-term refinanced up to 97% LTV and 80% for cashout refinance). 

Remember that your property type and use also affect your eligibility to refinance a conventional loan. Primary residences typically offer the best conventional loan refinance rates and terms.

Second homes and investment properties often require higher down payments, larger cash reserves, and may have slightly higher interest rates. Lenders also consider your loan’s seasoning period, usually requiring at least six months of on-time payments before you can refinance a conventional loan.

Conventional Loan Refinance Rates

Current mortgage refinance rates determine your potential savings and monthly payment changes.

When to Consider Refinancing Your Conventional Loan

Several situations make refinancing your conventional loan a smart financial move. Consider refinancing if you fall into any of these scenarios:

• Falling interest rates: Market rates drop significantly below your current rate.
• Improved credit score: Your credit profile strengthens, qualifying you for better terms.
• Property values increase: As your property increases in value, you can remove mortgage insurance (if applicable) or withdraw cash for home improvements/renovations.
• Financial goal changes: You want to pay off your mortgage faster or reduce monthly payments.
• Debt consolidation needs: High-interest debt requires consolidation through cash-out refinancing.

• Cash flow improvements: You need to free up monthly income for other expenses or investments.

However, refinancing doesn’t always make financial sense. You should avoid refinancing in certain circumstances where the cost to refinance exceeds your potential savings:

• The closing costs are too high compared to your monthly savings
• You plan to move within the next few years
• Your current mortgage has minimal remaining balance

For example, rate-and-term refinancing would work well if you currently pay 6.5% interest but now qualify for 5.8% due to improved credit or falling market rates. This rate reduction could potentially save you hundreds of dollars monthly over the life of your loan.

Cash-out refinancing makes sense in different situations. If you have $200,000 in home equity and need $50,000 for major home renovations, you can access these funds at today’s mortgage rates rather than taking a higher-interest personal loan or home equity line of credit. This strategy helps you complete your improvements while maintaining favorable borrowing costs.

Take the First Step Towards Refinancing Your Conventional Loan

Refinancing your conventional loan opens doors to better interest rates, lower monthly payments, and access to your home’s equity. Whether you choose a rate-and-term refinance to improve your loan terms or a cash-out refinance to fund major expenses, the right refinancing strategy can strengthen your financial position and help you achieve your homeownership goals.

Ready to explore your conventional refinance options? Griffin Funding specializes in helping homeowners secure better mortgage terms through our streamlined refinancing process. Our experienced loan specialists work with you to determine if a conventional loan refinance aligns with your financial goals.

Use our Griffin Gold app to calculate potential savings, compare refinancing options, and connect with our team. The app simplifies the application process and keeps you updated on your loan status from start to finish.

Contact Griffin Funding today to discover how much you could save with a conventional loan refinance. Or, if you’re ready to start the pre-approval process, get started online.