6 Ways to Financially Prepare to Refinance in 2025
Refinancing your mortgage is a potentially life-changing decision that requires careful preparation. If you are considering a refinance in the near future, here’s a guide on how to prepare your finances beforehand:

Evaluate Your Current Mortgage Situation
Start by reviewing your current mortgage. Here are a few factors to consider:
- Interest rates: what is your current interest rate compared to today’s rate?
- Your current balance: how much more do you owe on your mortgage?
- Monthly payment: how comfortable are you with your current monthly payment?
Check Your Credit Score
Your credit score plays a major role in determining your loan options:
- Know your credit score: a score higher than 740 will allow you to have better rates -- if your score is lower than that, you may need to hold off on refinancing.
- Obtain your credit report: make sure there are no errors or discrepancies in your report.
- Improve your score: pay down debts, make all future payments on time, and avoid new credits inquiries before applying for a refi.
Gather Necessary Financial Documents
Lenders require you to have certain documents to process your refinancing options:
- Proof of income: W2 forms or tax returns from the past two years will likely be required.
- Current mortgage statements: your new lender will of course need to verify the details of your current mortgage loan.
- Asset statements: gather up copies of your recent bank statements, investment account statements, and retirement account statements.
- Identification: you’ll need multiple forms of ID and your social security number readily available.
Figure Out Your Home Equity
Understanding your home equity will allow you to determine how much you can safely borrow:
- Home appraisal: getting an appraisal will give you an accurate understanding of your home’s current value.
- Calculate your home equity: subtract your mortgage balance from your home’s market value to find how much you have in equity. This is a particularly important step for cash-out refinancing.
Research Different Loan Options
Find different refinancing options to see what best fits your goals:
- Fixed vs adjustable rate: decide whether you prefer a stable rate or a flexible rate -- both have a host of pros and cons that you should get to know before choosing a loan.
- Loan term: consider whether you want a shorter or longer term loan. Shorter loan terms mean higher monthly payments but less in interest overall, while longer terms usually allow for lower monthly payments, but an overall increase in interest payments over the life of the loan.
- Cash-out refinancing: determine if you want to access extra money via your home equity. If so, a cash-out refinance might be the way to go.
Consider the Cost of Refinancing
Know the cost associated with refinancing:
- Closing costs: these generally range from 2% to 5% of the total loan amount and may include appraisal fees, title insurance, and lender fees. It’s important to consider this when deciding if a refi is worth it for you or not.
- Break-even point: calculate how long it will take to recoup the costs associated with refinancing. If you plan to stay in your home longer than this period of time, refinancing may be worthwhile.
Key Takeaways for a Successful Refinance
Preparing your finances for refinancing involves a careful evaluation of your current mortgage, credit score, and overall financial situation. A successful refinance is far more likely if you take the time to analyze your current finances and learn about the different types of refi loans ahead of time.