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If your monthly mortgage payment no longer fits your lifestyle or financial goals, you may be able to change it with mortgage refinancing or recasting. Recasting and refinancing are two ways a borrower can save on mortgage costs — sometimes a jaw-dropping amount. To understand which might be best for you, it helps to understand the difference between them and the pros and cons of recasting your mortgage vs. refinancing.

The Difference Between Recast and Refinance

Recasting is the reamortizing of an existing mortgage, meaning the lender will recalculate your monthly payments. Refinancing involves taking out a completely new mortgage with a new rate, and possibly a new term, and paying off your old mortgage in the process.

Recasting

If your lender offers mortgage recasting and your loan is eligible, here’s how it works: You make a large lump-sum payment — $10,000 might be required — toward the principal balance of your mortgage loan. The lender recalculates the monthly payments based on the new, lower balance, which shrinks the payments. The lender may charge a few hundred dollars to reamortize the loan.

Mortgage recasting does not change your loan length or interest rate. But because your principal amount is lower, you’ll have lower monthly payments and will pay less interest over the life of the loan.

If you were to put a chunk of money toward your mortgage principal and not recast the loan, your payments would not change, though the extra principal payment would reduce your interest expense over the life of the loan.

Who might opt for mortgage recasting? Someone who has received a windfall and wants to put it toward the mortgage might like this option. Sometimes it’s someone who has bought a new home before selling the previous one. Once the old home is sold, the homeowner can use some of the proceeds to recast the new mortgage.

Another candidate for recasting might be someone who wants to use the lump sum to pay their loan down to 80% of the home’s value so they can request to stop paying for private mortgage insurance (PMI) or get it automatically dropped (when they reach 78%).

FHA, VA, and USDA loans are not eligible for mortgage recasting. Some jumbo loans are also excluded. If you want to change the monthly payments on those types of mortgages, you’ll need to refinance your loan.

Refinancing

When you seek refinancing, you’re applying for a brand-new loan with a new rate and terms, possibly from a new lender. Most people’s goal is a lower interest rate, a shorter loan term, or both.

While finding a competitive offer might take some legwork, refinancing could help you save money. A lower interest rate for a home loan of the same length will reduce monthly payments and the total amount of interest paid over the life of the loan.

A homeowner who refinances to a shorter term, say from 30 years to 15, will pay much less total loan interest. Fifteen-year mortgages also often come with a lower interest rate than 30-year home loans.

Refinancing may make sense for homeowners who are planning to stay put for years; those who want to switch their adjustable-rate mortgage to a fixed-rate one; and borrowers with FHA loans who want to shed mortgage insurance premiums (MIP), on a loan they’ve paid down or a home that has appreciated. Most FHA loans carry mortgage insurance for the life of the loan. Equity-rich homeowners who’d like to get their hands on cash may find cash-out refinancing appealing.

Recommended: Mortgage Questions for Your Lender

Pros and Cons of Mortgage Recasting

There are both positive and negative aspects to mortgage recasting.

Pros of Recasting

Mortgage recasting lowers your monthly mortgage payments and lets you save on total loan interest while keeping the same interest rate. Since you recast your mortgage with your existing lender, the process is pretty straightforward, and the cost could be as low as $150.

Cons of Recasting

There are some potential drawbacks to mortgage recasting, as well. Making a large lump-sum payment means you could be trading liquidity for equity – and creating financial instability if unexpected expenses arise or if the housing market takes a downward turn.
If you have other debts with higher interest rates, you may want to avoid mortgage recasting. It could make more sense to use the money you would put toward the principal to pay down your higher-interest debt first.

“No matter what method works best for you, it’s important to cut spending as much as you can while you’re tackling your debts,” said Kendall Meade, a Certified Financial Planner at SoFi.

Recommended: Cash-Out Refinance vs HELOC

Pros and Cons of Mortgage Refinancing

Mortgage refinancing also has upsides and downsides.

Pros of Refinancing

If you are eligible to refinance, you won’t need a large cash source in order to lower your mortgage payments. Instead, your main goal is to qualify for a lower interest rate. If you succeed, you will save a lot of money in interest over time.

With a cash-out refi, you can tap your home equity and use that money for whatever you need to do: pay down higher-interest debt, add to the college fund, or remodel your kitchen.

Cons of Refinancing

Reducing your loan term with a refi could result in a higher mortgage payment, even though it can let you save total interest over the life of the new loan.

Refinancing involves closing costs, which could range from 2% to as much as 6% of the remaining principal. You’re taking out a new mortgage, after all. Some lenders will let you roll closing costs into your loan, though this may raise your interest rate or your loan balance.

To figure out whether a refinance might be worth the price of closing costs, it’s a good idea to calculate the break-even point, when interest savings will exceed closing costs. Everything beyond that break-even point will be savings.

💡 Quick Tip: Generally, the lower your debt-to-income ratio, the better loan terms you’ll be offered. One way to improve your ratio is to increase your income (hello, side hustle!). Another way is to consolidate your debt and lower your monthly debt payments.

When to Choose Recasting Over Refinancing

Recasting vs. refinancing can seem like a tough choice. But there are a number of situations in which a recast may make more sense.

•   You’ve gotten a windfall and don’t have other pressing financial issues. A recast allows you to cheaply and easily reduce your monthly payments.

•   You have a better rate on your mortgage than you could get today. A recast will let you keep that rate, while reducing your payments.

•   You’re self-employed or have poor credit and would have difficulty qualifying for a mortgage refinance, but you want to lower your monthly payments.

•   You want to lower your monthly payments with a cheaper, faster process than a refinance.

Factors to Consider Before Making a Decision

As you contemplate getting a mortgage recast vs. a refinance, there are a few things to keep in mind.

Loan Type and Lender Policies

It may sound appealing to recast vs. refinance your mortgage but only conventional loans are eligible. If you have a government-backed loan – like a VA home loan or an FHA mortgage – you may need to consider a refinance vs. a recast.

Even if you do have a conventional loan, you’ll still need to find out if your lender offers mortgage recasts (not all of them do). If your lender does provide mortgage recasts, ask what your lender’s requirements are and see if you meet them. Typically, lenders may want:

•   A minimum payment toward principal – typically $10,000

•   Sufficient home equity, as determined by the lender

•   Good financial standing, meaning that you have built up a history of on-time payments

Long-Term Financial Goals

Before you decide on mortgage recasting vs. refinancing, you’ll want to review which process aligns better with your long-range plans.

Say you’re planning an early retirement. If you’d really like to pay off your mortgage soon and not have to budget for that monthly payment any longer, you may want to consider a mortgage refinance vs. a recast. It will let you adjust your interest rate and loan term. And though closing costs are more expensive than a recast servicing fee, a refinance can let you pay your loan off earlier.

However, if you’re planning to work for the next 30 years but would like to pay less each month and save on your overall interest, a mortgage recast vs. a refinance may make sense for you. That’s especially true if you’ve gotten a windfall – from a bonus at work or from selling a previous home, for instance – and don’t have other pressing debts or needs.

A recast may also be appealing if you already have a great interest rate and probably couldn’t get a better one, for instance. Or if you just started a business and don’t have the kind of documentable financial stability a lender would want to see before giving you a refinance. In these situations, you may want to consider recasting your mortgage vs. refinancing.

The Takeaway

A mortgage recast vs. refinance: different animals with similar aims. A recast requires a lump sum upfront but will shrink payments and total loan interest. A mortgage refinance may greatly reduce borrower costs and sometimes free up cash or shorten the loan term. The one that is right for you will depend on your current loan terms and your available cash, among other factors.

Looking for an affordable option for a home mortgage loan? SoFi can help: We offer low down payments (as little as 3% - 5%*) with our competitive and flexible home mortgage loans. Plus, applying is extra convenient: It's online, with access to one-on-one help.

FAQ

Can you recast and refinance at the same time?

Not exactly. However, a cash-in refinance combines characteristics of both, letting you make a large payment toward your principal as you get a new home loan. This allows you to get new and, ideally, more favorable terms on a smaller loan, which can save you money. You will, however, have to pay closing costs.

Can you recast any type of mortgage loan?

No. You can recast conventional loans, but not government-backed loans like FHA or VA mortgages. Some lenders may recast jumbo loans.

Does recasting your mortgage affect your interest rate?

Unlike refinancing, recasting your mortgage doesn’t change your interest rate or your loan term.

Are there fees associated with a mortgage recast?

There may be service fees for a mortgage recast, but those are typically no more than a few hundred dollars.

When is refinancing better than recasting?

You may be better off with a refinance vs. a recast if you are interested in paying your loan off earlier than originally planned, if you can get a better interest rate now, or if you don’t have a significant lump sum to put toward your loan principal.

SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.

SoFi Mortgages
Terms, conditions, and state restrictions apply. Not all products are available in all states. See SoFi.com/eligibility-criteria for more information.

SOHL-Q325-034

What happens when you pay off your mortgage? You may have some paperwork and account switching (such as property taxes) to take care of. And you may look forward to greater cash flow.

But is paying off a mortgage always the right move? In some cases, a person who is about to pay off a mortgage may want to consider a couple of options that might make more sense for their particular financial situation.

Learn more about the payoff path and alternatives here.

Should I Pay Off My Mortgage Early?

Paying off your mortgage is a fantastic milestone to reach, but it’s not without trade-offs. Here are a few considerations to help you make the best decision for your situation.

Pros of Paying Off Mortgage Early

The upsides of paying off your mortgage early may seem obvious. You won’t need to make that monthly payment any longer, which can free up cash. You’ll save much of the interest you would have paid over the life of your home loan. And you’ll be reducing the amount of money you’ll need during your retirement, which is good planning. Plus, with no mortgage, you’ll be minimizing your risk of foreclosure.

Cons of Paying Off Mortgage Early

There are potential negatives, as well. If you’re making extra payments, you may miss out on investment opportunities and alternative uses for your money, and after you pay off your mortgage, much of your cash will be tied up in your home equity. Additionally, if you’re paying the loan off early, there may be prepayment penalties, depending on the terms of your mortgage. And once you’ve paid off your mortgage, you won’t be able to deduct your mortgage insurance from your taxes, if you’re someone who took advantage of that option.

💡 Quick Tip: Thinking of using a mortgage broker? That person will try to help you save money by finding the best loan offers you are eligible for. But if you deal directly with an online mortgage lender, you won’t have to pay a mortgage broker’s commission, which is usually based on the mortgage amount.

What Happens After You Pay Off Your Mortgage?

Here’s how mortgage payoff works:

•   To find out the amount you need to pay off your mortgage, the first thing you need to do is request a mortgage payoff letter. If you pay the amount on your last statement, you won’t have the right amount. A mortgage payoff letter will include the appropriate fees and the amount of interest through the day you’re planning to pay the loan off.

•   Know that the payoff letter is only good for a set amount of time, and make sure to get your payment in on time.

•   Follow the instructions you’re given about where and how to submit the payment.

•   Once you’ve sent the payoff amount, your mortgage lender is responsible for sending you and the county recorder documentation to release the mortgage and lien on your home.

•   You should be sent any funds remaining in escrow.

•   You will want to contact your insurance company about this change if you paid your lender for your homeowners insurance along with your mortgage payment and have the bills switched over to you directly.

•   If your property taxes were paid as part of your mortgage payment, you will want to contact your local tax authority about shifting those bills to you as well.

What Documents Do You Get After Paying Off a Mortgage?

After paying off your mortgage, you should receive (or have access to) documents proving you paid off the mortgage and no longer have a lien attached to your home.

Mortgage Payoff Statement

As noted earlier, when you’re thinking about paying off your mortgage, you can request a payoff letter that will detail the exact amount you need to pay off your mortgage, what it covers, and when it’s due. If you decide to follow through, your lender may send you a payoff statement showing that your loan has been paid in full.

As further evidence that your mortgage has been satisfied, you may receive your canceled promissory note. This is your promise to pay your mortgage, and you signed it when you closed on your home. Now that your mortgage has been satisfied, you may receive this document back with a “canceled” or “paid in full” marked on it, though it’s also possible you may have to call and request the document.

Satisfaction of Mortgage or Release of Lien

This is an official, signed document that your lender will prepare to confirm that you have fulfilled the conditions of the mortgage and the lender no longer has any claim to the property. Typically, this document will be filed with the county recorder (or other applicable recording agency) by the lender. It details the mortgage and states that the mortgage has been satisfied and the lien released. Ideally, you should receive notification from the filing authority once the document has been filed. Having this document on file can help expedite things if you later want to sell your home, for example.

What Should You Do After Paying Off Your Mortgage?

After you pay off your mortgage, you’ll need to take care of a few housekeeping items, as mentioned earlier.

Update Your Records and Insurance

You may be wondering what do you pay after your mortgage is paid off? Now that you have full title to your home, you’ll need to take on a few responsibilities your lender may have handled. Your lender will send you any remaining funds from your escrow account. But you’ll need to take care of the items funded through your escrow account, usually your taxes and homeowners insurance. Contact your tax authority to make sure you’ll get its messages going forward, and reach out to your insurance company to let it know of the change as well.

Plan for Ongoing Property Expenses

Without that escrow account, you’ll need to start budgeting for ongoing property expenses, including your property taxes and homeowners insurance. Fortunately, those costs will probably be far lower than the mortgage premiums you’ve been paying, so just be sure you budget in advance to cover them. As for other ongoing costs, like maintenance and utilities, you’ve likely been paying those while you’ve had your mortgage, but now you may want to budget for larger projects or additions to your home. It’s wise to make plans for that freed-up cash, whether it’s paying off other debts, shoring up your emergency fund, adding to your retirement fund, or building a garage. Cash you don’t make plans for has a way of slipping away.

Recommended: 2025 Home Loan Help Center

Is Prepaying a Good Idea?

Generally, paying off your mortgage early is a great idea. It reduces the principal, which in turn reduces the amount you’ll pay in interest over the life of your loan. Still, there are reasons that some homeowners consider not paying their mortgage off early.

Most lenders do not charge a prepayment penalty, but home loans signed before January 10, 2014, may include one. Some conventional mortgage loans (especially nonconforming loans) signed on or after that date may have a prepayment penalty that applies within the first three years of repayment. (The different types of mortgage loans include conforming and nonconforming conventional mortgages.)

The best way to find out if prepayment is subject to a penalty is to call your mortgage servicer. The terms of your mortgage paperwork should also outline whether or not you have a prepayment penalty.

Should You Refinance Instead?

Another option you might consider is refinancing your mortgage. There are several reasons you may want to refinance instead of paying off your mortgage.

Lower monthly payment. Getting a lower rate or different loan term may lower your monthly payment without requiring as much cash as a payoff. Be sure to check out current rates, and use a mortgage calculator to find out what a possible new payment would be.

Shorter mortgage term. Refinancing a 30-year mortgage to, say, a 15-year mortgage can keep you close to paying off your mortgage while also providing financial flexibility. Note that your monthly payments may increase, though you’ll likely save money in interest over the long term.

Spare cash. Whatever your need is — home renovations, college funding, paying off higher-interest debt — a cash-out refinance might be an option.

💡 Quick Tip: Compared to credit cards and other unsecured loans, you can usually get a lower interest rate with a cash-out refinance loan.

The Takeaway

What happens when you pay off your mortgage? After doing a jig in the living room, you’ll need to take care of a few housekeeping tasks and make plans for the extra money.

An alternative to consider: Would a refinance to a shorter term make more sense, or pulling cash out with a cash-out refi? It can be wise to review all your options as you move toward taking this major financial step.

Looking for an affordable option for a home mortgage loan? SoFi can help: We offer low down payments (as little as 3% - 5%*) with our competitive and flexible home mortgage loans. Plus, applying is extra convenient: It's online, with access to one-on-one help.

FAQ

Is paying off your mortgage a good idea?

The answer depends on your individual situation. If you have the money and you’d love to shed that monthly obligation for good, paying off a mortgage can be a good idea. But if you’re worried about funding your retirement or losing opportunities to invest, paying off your mortgage may not be a good idea for you.

What do you do after you pay off your mortgage?

Ensure that you have received your canceled promissory note, and update your property tax and insurance billers on where to bill you. And remember what you do need to pay after your mortgage is paid off: Since you no longer will have a mortgage servicing company, you must pay your insurance and property taxes yourself.

Is it better to pay off a mortgage before you retire?

Paying off a mortgage could give you more money to work with in retirement. But if your retirement accounts need a boost, most financial experts contend that allocating money there is a better idea than paying off your mortgage. Paying off a mortgage when you have low cash reserves can also put you at risk.

Does paying off your mortgage early affect your credit score?

Surprisingly, paying off your mortgage early won’t affect your credit score much. Your credit score has already taken into account the years of full, on-time payments you made each month.

What documents prove your mortgage is paid off?

When you’ve paid off your mortgage, your lender will send you a number of documents indicating that your mortgage is paid off. These may include a mortgage statement showing your obligations were paid in full and/or a canceled promissory note. Additionally, the lender should have filed a satisfaction of mortgage or release of lien with your county recorder’s office. While you should keep all documentation pertaining to your mortgage payoff, if you haven’t, you may be able to request a copy from your county recorder.

Photo credit: iStock/katleho Seisa

*SoFi requires Private Mortgage Insurance (PMI) for conforming home loans with a loan-to-value (LTV) ratio greater than 80%. As little as 3% down payments are for qualifying first-time homebuyers only. 5% minimum applies to other borrowers. Other loan types may require different fees or insurance (e.g., VA funding fee, FHA Mortgage Insurance Premiums, etc.). Loan requirements may vary depending on your down payment amount, and minimum down payment varies by loan type.

SoFi Mortgages
Terms, conditions, and state restrictions apply. Not all products are available in all states. See SoFi.com/eligibility-criteria for more information.

SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.

SOHL-Q325-027

When you’re looking for a mortgage loan, credit union vs. bank is a key question. Each option comes with pros and cons.

Here’s an overview to help you make the right choice for your situation.

How Credit Union and Bank Mortgages Are Similar

In many ways, banks and credit unions can be quite similar as mortgage providers. At a high level, approval processes are the same at each type of financial institution. Each will have mortgage underwriting guidelines, and after a borrower applies, the loan will be reviewed and approved, suspended, or denied. Plus, both may offer mortgage preapprovals.

Below are more similarities.

Application Process

As you look at credit union mortgages vs. bank mortgages, you’ll see that both typically offer you multiple ways to apply for a loan, including in an in-person appointment at a branch office, over the telephone, or online on the organization’s website.

Types of Mortgages

Generally, you’ll be able to apply for many different mortgage types at a bank or a credit union. Common types of home loans include fixed-rate and adjustable-rate loans as well as conventional and government-insured loans (such as FHA and VA mortgages).

One-Stop Shop for Finances

Both credit unions and banks usually offer a range of financial services, so you can also turn to them for savings and checking accounts, personal or auto loans, and CDs, among other services.

💡 Quick Tip: SoFi’s Lock and Look + feature allows you to lock in a low mortgage financing rate for 90 days while you search for the perfect place to call home

Differences Between Credit Union and Bank Mortgages

While there are similarities between bank and credit union mortgages, there are also differences to be aware of.

Membership

Banks are typically open to serving most customers, but credit unions are meant for their members. There can be membership criteria – such as living in a certain area or being a member of a specific profession – that can limit the credit union options open to you.

Loan Options

When it comes to options among mortgage loans, credit unions vs. banks may have a disadvantage. Major national banks may have more loan choices available than credit unions, which tend to be smaller institutions.

Profitability

Banks are generally for-profit businesses, and aim to make money for their stockholders. Credit unions, on the other hand, are generally non-profit organizations.

Underwriting Process

Banks, especially large ones, often follow strict underwriting guidelines. Credit unions, which tend to be smaller and more local, may underwrite loans locally, giving them a fuller picture of their members’ financial situations, and may be able to be more flexible

Benefits of Getting a Credit Union Mortgage

Are credit unions good for mortgages? In many ways they are. While a bank has stockholders, a credit union consists of members (account holders) who more or less serve in this same role. A bank must satisfy its investors by making a profit; credit unions don’t have that obligation, so they can return those dollars to members through more attractive interest rates, lower fees, and more.

To enhance their members’ financial wellness, credit unions typically provide the following benefits.

Looser Approval Criteria

In general, credit unions may approve more loans in the lower- to middle-income range for their members. And if your credit scores are less than ideal, a credit union loan is sometimes the better choice.

Lower Interest Rates

Overall, credit unions offer lower rates on their mortgage loans. To estimate how much money this may save you, use a mortgage calculator.

Fewer Fees

Credit unions can pass on savings to members through lower fees as well as lower rates.

The Personal Touch

Because credit unions are less likely to sell their mortgage loans to a third party, a borrower is more likely to know the loan servicer (the credit union). This can lead to more personalized service.

Local Market Knowledge

Since a credit union is typically more local, with ties in the community, you’re likely to be working with a loan officer who is familiar with your area, what’s typically available, and what the going rates for different kinds of homes are. This knowledge can help you find and make a fair offer on your home more easily.

Recommended: How Does the Mortgage Preapproval Process Work?

Disadvantages of Getting a Credit Union Mortgage

Are credit unions better for mortgages? That depends on your needs and preferences. Credit union mortgages also have downsides.

Membership is a Must

In most cases, a borrower must meet certain requirements to join a credit union. This can include living in a certain community, belonging to a certain profession, or otherwise having the appropriate affiliation.

Fewer Locations

Usually, credit unions have fewer branches, which can limit their geographical range. So when you’re away from home, outside the credit union’s range, it may be harder to conduct all the financial transactions you might like. For example, the ATM network may be smaller and less convenient.

Stale Tech

Because credit unions are often more local institutions, they typically won’t have the up-to-date technology found at larger banks. So if a borrower wants first-class online and mobile banking, credit unions may not be the best choice.

Limited Menu

Credit unions may offer fewer financial products, especially on the savings and investment side. They may only offer checking and savings accounts, for example, plus credit cards. Although that may not affect a borrower’s ability to get a mortgage, it can limit what other products they can benefit from at the credit union.

Possibly Higher Interest Rates

Sometimes credit unions can’t compete with banks, especially when a large bank offers especially good interest rates. So be sure to compare rates if you’re looking for the most attractive ones.


💡 Quick Tip: Generally, the lower your debt-to-income ratio, the better loan terms you’ll be offered. One way to improve your ratio is to increase your income (hello, side hustle!). Another way is to consolidate your debt and lower your monthly debt payments.

Benefits of Getting a Bank Mortgage

Getting a home loan at a bank has its upsides, including the following.

Variety of Services

Banks often offer a significant range of savings, lending, and retirement-related financial products, making it easier for a borrower to have an all-in-one financial institution.

Multiple Branches and ATMs

Banks, especially national ones, will typically allow you to have access to multiple branches in more locations as well as a larger ATM network. This can make for a more convenient experience.

New Tech

Banks are, overall, more likely to have the latest in banking technology, including the ability to bank online and to use more sophisticated mobile apps.

Access to Loan Products

Because they tend to be larger and serve a broader population, banks often have a wider range of loan products available to their customers, like jumbo loans.

Disadvantages of Getting a Bank Mortgage

Drawbacks of getting a bank home loan can include the following.

Higher Interest Rates

Banks need to generate profit for stockholders — and credit unions don’t — so banks may charge a higher rate on home loans. But this isn’t universally true, so it’s always a good idea to compare rates.

Higher Fees

In general, banks charge higher mortgage fees than credit unions do. Although not always true, this is something to investigate.

Less Personalized Customer Service

Because credit union membership tends to be smaller and more local, bank customers may receive less personal service, especially when using a branch outside their more typical one (perhaps while traveling). Plus, banks are more likely to sell mortgage loans to a third-party loan servicer.

With any lender, bank, or credit union, a house hunter should feel at ease asking a range of mortgage questions.

Recommended: Tips on How to Shop Around for a Mortgage Lender

How to Choose the Right Mortgage Lender

Whether you’re better off with a mortgage from a bank or a credit union depends heavily on your situation and preferences.

First, consider what kind of experience you want. If you’re looking for a wide network of services and many different loan options, a bank may work for you. If you’d like a more personalized approach that could involve less rigorous qualifications and allow you to tap into local expertise, a credit union may be the better option.

You’ll also want to consider the cost. Though credit unions may typically offer lower rates, costs, and fees, that’s not always true, so it’s worth looking around and comparing.

Finally, you may want to factor in convenience. Banks typically have more branches and more up-to-date tech options, but credit unions may more easily allow you to develop ongoing relationships with local loan providers who understand your situation.

Taking all these factors into account, you can make an informed decision about what option will best suit you.

The Takeaway

Thinking about a credit union mortgage vs. a bank mortgage? Each has its upsides and potential downsides. If you’re a borrower looking for a home mortgage loan, explore the pros and cons to make the right choice for your specific situation.

Looking for an affordable option for a home mortgage loan? SoFi can help: We offer low down payments (as little as 3% - 5%*) with our competitive and flexible home mortgage loans. Plus, applying is extra convenient: It's online, with access to one-on-one help.

FAQ

Is it better to get a mortgage at a credit union?

Not necessarily. It’s a good idea to look into what each route offers before making the right choice for you.

What are the disadvantages of credit unions?

Credit unions tend to be smaller and more localized than many banks, so disadvantages can include fewer locations, a smaller ATM network, and more limited financial products. Borrowers must qualify to become a credit union member; technology probably won’t be as modern as that at a larger bank; and, in some cases, rates can be higher.

Are credit unions safe for mortgages?

The National Credit Union Administration insures deposits of up to $250,000 at all federal and some state credit unions, protects the members who own credit unions, and regulates federal credit unions. Eligible bank accounts of the same amount are insured by the Federal Deposit Insurance Corporation.

Can I take out a HELOC or second mortgage through a credit union?

Not all credit unions offer the same products, but many of them do offer home equity lines of credit and home equity loans.

Do credit unions have better mortgage rates than banks?

Sometimes credit unions have better mortgage rates than banks, but that isn’t always true. In some cases, large banks may be able to offer lower rates, so it’s always worth shopping around and comparing credit union mortgage rates vs. bank rates to find the best terms you can get.

Photo credit: iStock/Lemon_tm

SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.

SoFi Mortgages
Terms, conditions, and state restrictions apply. Not all products are available in all states. See SoFi.com/eligibility-criteria for more information.

SOHL-Q325-033

Expect to pay 2% to 5% or even 6% of the new mortgage amount in closing costs when you refinance your mortgage.

If you have sufficient equity in your home and you’re tempted by a rate-and-term refinance or a cash-out refi, here’s what you need to know about the costs.

What Is the Average Cost to Refinance a Mortgage?

How much does it cost to refinance a mortgage? Let’s put it this way: Refinancing isn’t free. That’s because you’re taking out a new home loan and paying off your current one, and doing so brings on a host of costs, though not as many as purchase loans incur.

The main difference between the average cost to refinance vs. closing costs for home purchases is that owner’s title insurance and several inspection fees common for purchases are not necessarily required for refinances or may be cheaper. But there is evidence that fees have been creeping up in recent years. From 2021 to 2023, median total loan costs for home mortgages increased by over 36%, according to the government’s Consumer Financial Protection Bureau.

Common Mortgage Refinance Fees

Some fees to refinance are flat fees that vary by lender. Other fees are based on a percentage of the loan amount.

Then there are recurring closing costs like homeowners insurance and property taxes. Six months of property taxes are often due at closing.

Here are some common fixed closing costs, though in some cases, a borrower may not need an appraisal.

And here are common percentage-based closing costs. Keep in mind that not all borrowers will need mortgage insurance (PMI or MIP: private mortgage insurance for conventional loans, and mortgage insurance premium for FHA loans). PMI is usually needed for a conventional loan exceeding an 80% loan-to-value ratio.

An FHA loan can be refinanced to another FHA loan or to a conventional loan if the borrower meets credit score and debt-to-income requirements for a nongovernment loan. USDA and VA loans can also be refinanced.

Hidden Costs to Watch For

Being aware of the range of potential closing costs and fees for a refinance is important as you’re evaluating whether a refinance would make financial sense for you. But there are some potential fees that might blindside you. Here are a few to look out for.

•   Prepayment penalties. If your original mortgage penalizes you for an early payoff, your refinance might trigger those fees. How these penalties work varies by lender, so it’s worth checking with yours to make sure you know what, if any, fees you might be facing if you refinance.

•   VA funding fee. If you’re refinancing using a VA loan, you’ll need to pay an upfront funding fee. The fee is a percentage of the amount you’re borrowing and may be higher for refinances, depending on the down payment. Current rates range from 1.25% to 3.3% of the loan amount.

•   USDA guarantee fee. If you’re refinancing to a USDA loan, expect to pay a new guarantee fee, currently 1% of your loan amount, as well as a recurring annual fee of 0.35% of the loan amount.

Are You Eligible to Refinance?

Most mortgage lenders want a homeowner to have at least 20% equity in the house in order to refinance, although those numbers are not universal.

What is home equity? Here’s an example. If your home is worth $450,000 and the current mortgage balance is $250,000, you have $200,000 in equity. The loan-to-value ratio is 56% ($250,000 / $450,000). This scenario fits the parameters of many lenders for a refinance to take place.

Credit Score and Debt-to-Income Ratio Requirements

You’ll typically need a minimum FICO® credit score of 620 to refinance a conventional loan and 580 to refinance an FHA loan. A score of 740 or above often ushers in the best rates.

Lenders will also look at your debt-to-income (DTI) ratio, which compares your monthly debt to your monthly income. What they’ll accept depends on the lender, but for a refinance, they may prefer as low as 35% or less, though some may be willing to accept higher if your other credentials are good.

Besides credit score and DTI ratios, lenders normally review recent credit applications, on-time payments, and credit utilization.

Recommended: 7 Signs It’s Time for a Mortgage Refinance

Benefits of Refinancing a Mortgage

The most common type of refi is a rate-and-term refinance, when you take out a new loan with a new interest rate or loan term (or both). Some people will choose a mortgage term of less than 30 years when they refi, if they can manage the new monthly payment.

Then there’s cash-out refinancing, which provides a lump sum to the homeowner.

In general, refinancing may make sense if interest rates fall below your current mortgage rate. Here are some times when a mortgage refinance could be beneficial.

If You Can Break Even Within a Suitable Time Frame

Calculate how long it would take to recoup the closing costs. Find the break-even point by dividing the closing costs by the monthly savings from your new payment.

Let’s say refinancing causes your payment to decrease by $100 a month. If closing costs will be $2,500, it would take 25 months to recoup the costs and start to see savings.

If you plan to sell the house in two years, refinancing may not be the right strategy. If you intend to stay long term, it may be an idea to explore.

If You Can Reduce Your Rate Even a Little

You might read or hear that refinancing is worth it if you can reduce your mortgage rate by one or two percentage points. But for a big mortgage, a change of just a quarter of a percentage point, or half of one, could result in significant savings, especially if you can minimize lender fees.

Again, consider the break-even point and how long you plan to keep the home.

You’d Like to Tap Home Equity

With a cash-out refinance, a percentage of your equity can be issued in a lump sum for any purpose. You will need to have at least 20% equity remaining after the transaction.

Be aware that the higher loan amount of a cash-out refinance usually results in higher closing costs.

(If your main goal is to access cash and not to change your rate or term, a home equity loan or home equity line of credit may be less expensive than paying the closing costs on a cash-out refinance.)

An ARM’s Teaser Rate Is Appealing

Refinancing a fixed-rate mortgage to an adjustable-rate mortgage could make sense for a homeowner who plans to move before the ARM’s initial rate adjustment.

A 5/1 ARM, for example, will typically come with a rate for five years that is lower than that of most fixed-rate mortgages.

In other rate environments, it could make sense to refinance an ARM to a fixed-rate mortgage.

You Want to Reduce Your Repayment Term

Some people may decide to take advantage of a lower rate and shorten their mortgage term, say from 30 years to 15. Monthly payments may well go up, but a lower rate and a shorter term mean paying much less over the life of a loan.

The amortization chart of this mortgage calculator shows how much interest may be saved.

You’d Like to Get Rid of FHA Mortgage Insurance

FHA loans come with an annual mortgage insurance premium (MIP) that ranges from 0.15% to 0.75% of the loan amount, divided into monthly payments. Unless you put down more than 10%, you must pay those premiums for the life of the loan. The only way to get rid of the MIP is to get a new mortgage that isn’t backed by the FHA.

You Want to Switch Loan Types

If you have a conventional mortgage but you’re eligible for a government-backed mortgage that may have more advantageous terms, a refinance to switch loan types could be worth exploring.

If you qualify for a VA loan, for example, it may be possible to refinance to a VA loan with a cash-out refinance. You can also potentially refinance from a conventional mortgage to an FHA cash-out refinance or FHA 203(k) refinance (used for home improvements), though you will have to pay the mortgage insurance premium.

Tips to Lower the Cost of a Mortgage Refinance

As you’re contemplating how much it costs to refinance a 30-year mortgage, bear in mind that the most important step you can take is to shop around.

Comparison Shop and Try to Negotiate

You need not apply for a refinance with just your current lender — and doing so would be a missed opportunity, the Consumer Financial Protection Bureau notes. Then again, your current lender may offer loyalty incentives.

Apply with as many lenders as you wish; you’ll receive a loan estimate from each. Compare the costs, including those of the lender’s preferred vendors.

Ask potential lenders which fees can be discounted or waived. Remember, each lender wants your business.

Typical non-negotiable closing costs found under Section B of each loan estimate include credit reports and appraisals.

Keep Your Credit Shipshape

Having at least a “good” credit score can help you get a more attractive rate, and if your credit score has improved since the initial mortgage was taken out, that could be a reason to refinance all by itself.

A good FICO score on the credit rating scale of 300 to 850 falls in the range of 670 to 739. VantageScore®, a competitor developed by Experian, Equifax, and TransUnion, considers a score between 661 and 780 good.

If your credit profile could use some polishing, consider ways to build credit over time.

Use the Same Title Insurance Company

Save money on the lender’s title insurance policy by asking for a reissue rate from the title insurance company that was used for the original loan.

Consider a Streamline Refi for Government Loans

If you have an FHA, USDA, or VA loan, you may want to see if you’re eligible for an FHA Streamline, USDA Streamlined-Assist, or VA Interest Rate Reduction Refinance Loan. The programs may charge a lower mortgage insurance fee than regular government refinance programs and usually do not require an appraisal.

Think About a No-Closing-Cost Refi

A no-closing-cost refinance allows borrowers to roll the closing costs into the mortgage or accept a slightly higher interest rate on the new loan.

Rolling the closing costs into the refinance loan will increase the principal and total interest paid. But if you’re going to keep the loan for more than a few years, this move could be worth it.

Accepting a slightly higher rate could work for borrowers who can skip the upfront payment and who plan to keep their new loan for only a few years.

Lock In a Favorable Interest Rate

When you’ve gotten an offer for an interest rate you like, you may want to get a rate lock, which will ensure the offer won’t change for a specified period of time – usually 30 to 60 days – as long as nothing else changes. Ideally, this will let you be sure you can close the deal with this rate. Some lenders may lock your rate when they issue the loan estimate, but others may not automatically lock your rate and may charge a fee. Check with your potential lender to understand your options.

Recommended: Guide to Buying, Selling, and Updating Your Home

The Takeaway

How much does it cost to refinance a typical 30-year mortgage? Refinancing your mortgage could cost anywhere from 2% to 5% or more of the loan amount but might make financial sense if you are able to capture a lower interest rate, shorten your payment term (and thus lower the amount of interest you pay), or escape paying a mortgage insurance premium on an FHA loan. To contain costs, always compare offers from multiple lenders and don’t forget to include both interest and closing costs (and fees) in your calculations.

SoFi can help you save money when you refinance your mortgage. Plus, we make sure the process is as stress-free and transparent as possible. SoFi offers competitive fixed rates on a traditional mortgage refinance or cash-out refinance.

FAQ

Is refinancing your mortgage free?

No. A whole new loan must be approved and processed, and fees will apply.

Is refinancing a mortgage worth the closing costs?

It might be. You’ll want to calculate your break-even point: Divide your closing costs by whatever your monthly savings will be to find the number of months it will take you to break even. Beyond that point, the refinancing benefits kick in.

Is it worth refinancing to save $100 a month?

Refinancing to save $100 a month could be worth it if you plan to keep your home long enough to cover the closing costs. Divide your closing costs by 100 to calculate how many months it will take you to break even.

Will refinancing cost me more in the long run?

If you get a new 30-year mortgage several years into your original 30-year loan, you are, in essence, lengthening the term of your loan, and that can cost you. It may make more sense to shorten the term to 20 or 15 years.

Is it cheaper to refinance with the same bank?

Your lender might offer a slightly lower rate, but it’s still a good idea to see what competitors are offering by comparing loan estimates.

Can you negotiate closing costs when refinancing?

Yes. Many lender fees and third-party vendor fees are negotiable. On each loan estimate, Section A lists the lender charges. Try to negotiate the lowest total lender charge, keeping the rate in mind. And third-party fees in Section C are negotiable.

*SoFi requires Private Mortgage Insurance (PMI) for conforming home loans with a loan-to-value (LTV) ratio greater than 80%. As little as 3% down payments are for qualifying first-time homebuyers only. 5% minimum applies to other borrowers. Other loan types may require different fees or insurance (e.g., VA funding fee, FHA Mortgage Insurance Premiums, etc.). Loan requirements may vary depending on your down payment amount, and minimum down payment varies by loan type.

SoFi Mortgages
Terms, conditions, and state restrictions apply. Not all products are available in all states. See SoFi.com/eligibility-criteria for more information.

SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.

SOHL-Q325-026

Considering taking out a $350K mortgage to purchase a home? It’s important to understand the upfront cost associated with a mortgage and to factor the monthly payments associated with it into your budget.

So how much will a $350K mortgage cost per month? This will vary based on factors such as interest rate, the terms of the loan, and more.

Total Cost of a $350K Mortgage

Monthly mortgage payments are a recurring expense homebuyers should include in their budget, but there are also some one-time and long-term costs they should keep in mind when determining how much home they can afford.

Upfront Costs

The largest upfront cost associated with a mortgage is likely the down payment on the property. The median down payment on a home is 18%, but if a buyer wants to avoid fees, including private mortgage insurance, they may have to put at least 20% down.

If a buyer puts 20% down and takes out a $350K mortgage, they’re likely putting down around $87,500.

On top of a down payment, buyers are expected to pay for some or all of the following before closing, including:

•   Abstract and recording fees: $200 to $1,000 and $125, on average, respectively

•   Application fees: up to $500

•   Appraisal fees: $300 to $600

•   Attorney fees: $150 to $$500/hour or with a project fee

•   Home inspection fee: $185 to $511

•   Title search and title insurance fees: $75 to $200 and 0.5%-1.0% of the mortgage, respectively

These may all be non-negotiable costs, but it’s also worth keeping in mind your wants for a new home, including furnishings and the cost for professional movers.


💡 Quick Tip: Buying a home shouldn’t be aggravating. SoFi’s online mortgage application is quick and simple, with dedicated Mortgage Loan Officers to guide you from start to finish.

Long-Term Costs

Payments on a $350K mortgage are due every month, but there are also long-term costs on the horizon for homeowners. It’s important to factor in the costs of maintenance and repair to a property over time.

In general, it’s good to follow the 1% savings rule. That means a homeowner should aim to set aside 1% of the home’s purchase price annually and earmark it for repairs or maintenance.

Saving this upfront can keep homeowners from dipping into emergency funds for repairing the HVAC or fixing a leaky roof.

Recommended: First-Time Homebuyer Guide

Estimated Monthly Payments on a $350K Mortgage

The cost of monthly payments on a $350K mortgage will come down to a few factors:

•   Down payment: How much the buyer puts down initially

•   Loan term: Including the length of the loan (15- vs. 30-year) and the structure of the payoff schedule (fixed-rate or adjustable-rate mortgage)

•   APR: The annual percentage rate of the mortgage

Monthly Payment Breakdown by APR and Term

The APR a homebuyer gets when applying for a $350K mortgage will vary based on market rates as well as the borrower’s financial history.

APR and the mortgage term will impact the total mortgage paid each month. As you can see, the monthly payments for a 15-year loan can be much higher than the payments for a 30-year loan. Remember, though, that over its lifetime, the 30-year mortgage is typically more costly because interest costs are higher.

Keep in mind these estimates do not include insurance or property tax estimates, which may be rolled into monthly payments.

Consider using a mortgage calculator to determine monthly mortgage estimates based on APR and loan terms.

Recommended: The Cost of Living by State

How Much Interest Is Accrued on a $350K Mortgage?

Though there are different types of loan, for them all, the total interest a homeowner will accrue on a $350K mortgage depends on the interest rate and loan length. An owner will pay more in interest the higher the rate and the longer the loan length.

On a $350K mortgage at 7.50% interest and a 30-year loan term, you would accrue around $531,010 in interest over the life of the loan. Borrow the same amount at the same rate for a 15-year loan term, and you would accrue $234,018 in interest.


💡 Quick Tip: To see a house in person, particularly in a tight or expensive market, you may need to show the real estate agent proof that you’re preapproved for a mortgage. SoFi’s online application makes the process simple.

$350K Mortgage Amortization Breakdown

Another helpful way to contextualize monthly payments on a $350K mortgage is through an amortization schedule, which breaks down payments by interest and principal.

For example, if a buyer secures a $350K mortgage with a 6.50% APR over a 15-year loan, their monthly payment will be roughly $3,049. With a longer loan term, an owner has lower monthly payments. However, it takes longer for a homeowner to pay down the principal, and over the life of the loan, the borrower with a 30-year term will pay more interest. Here’s an amortization scenario for a $350K mortgage with a 6.50% APR and a 30-year loan term, showing how the payment breaks down between interest and principal each year:

These monthly payments do not take into account additional costs, like taxes and insurance, that may be bundled into the monthly payment.

What Is Required to Get a $350K Mortgage?

The mortgage process can be confusing, but here are a few requirements to expect during the process:

•   Your credit score will impact your APR. Borrowers need a score of at least 500 for some mortgages, but most lenders require a score of 620 or more.

•   Prequalification can be an important tool in the buying process. You will provide some basic information and the lender will do a soft credit inquiry. You’ll emerge with a sense of what rate the lender might offer.

•   Once you know how much money you need to borrow, getting preapproved for a mortgage is an important step. You’ll fill out a mortgage application and provide documents, such as proof of income, tax returns, and bank account statements. If you’re preapproved, you’ll receive a letter granting conditional approval to borrow the amount within a certain window, typically 60 to 90 days. SoFi’s Home Loan Help Center offers more information on this process.

“If you have multiple debts, you want to make your minimum payments so you don’t hurt your credit score,” Kendall Meade, a Certified Financial Planner at SoFi said. “If you have cash left over after that, you should develop a strategy for which debts to pay off first,” she suggested.

How Much House Can You Afford Quiz

The Takeaway

A home is a serious purchase, and creating a budget beforehand is important. Understanding monthly payments on a $350K mortgage could help you determine if you can afford the home in the long run and help you budget for future expenses.

Factors like the loan length and APR will impact the monthly mortgage payment, and it’s worth considering different types of loans to determine which is the best fit for your finances.

Looking for an affordable option for a home mortgage loan? SoFi can help: We offer low down payments (as little as 3% - 5%*) with our competitive and flexible home mortgage loans. Plus, applying is extra convenient: It's online, with access to one-on-one help.

FAQ

What’s the monthly payment on a $350,000 mortgage?

The monthly payment on a $350K mortgage could range from $1,879 to $3,550 or more, depending on the loan’s interest rate and term. And that’s not including some fees that may be incorporated in the loan payment, such as insurance payments.

How much down payment do I need for a $350,000 mortgage?

To make a 20% down payment on a property with a $350,000 mortgage, you would need $87,500. Many buyers make lower down payments, however – some as low as 3%.

Can I afford a $350,000 mortgage on a $95,000 salary?

It would be difficult to cover the monthly payments for a $350,000 mortgage on a $95,000 salary — you would be better off borrowing less. Use an online mortgage calculator to zero in on the amount you can truly afford to comfortably borrow.

Photo credit: iStock/Joe Hendrickson

*SoFi requires Private Mortgage Insurance (PMI) for conforming home loans with a loan-to-value (LTV) ratio greater than 80%. As little as 3% down payments are for qualifying first-time homebuyers only. 5% minimum applies to other borrowers. Other loan types may require different fees or insurance (e.g., VA funding fee, FHA Mortgage Insurance Premiums, etc.). Loan requirements may vary depending on your down payment amount, and minimum down payment varies by loan type.

SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.

SoFi Mortgages
Terms, conditions, and state restrictions apply. Not all products are available in all states. See SoFi.com/eligibility-criteria for more information.

SOHL-Q325-006