The closing process is the final step in your refinancing process, where all the pieces come together to officially transition to your new mortgage.

Understanding what happens during this process can help prevent unnecessary delays, unexpected costs and last-minute surprises.

Read on to learn what happens during the closing process so you can confidently navigate this final and most important step toward your new loan.

How does refinancing work?

Homeowners choose to refinance for various reasons, including:

• Lowering interest rates and monthly payments
• Switching from an adjustable rate to a fixed-rate mortgage
• Shortening or lengthening the loan term
• Accessing home equity with a cash-out refinance

The new loan repays the balance of your existing mortgage and starts a new set of terms with a new interest rate, monthly payment and loan duration.

Like your current mortgage, you will submit an application, provide documentation and get an appraisal for your refinance loan.

Once the lender approves your loan, it’s time to move on to the refinance closing process.

How to prepare for the refinance closing process

As you approach the closing day, there are several things you can do to prepare for a smooth process.

Understand the complete refinance timeline

The entire refinancing process takes an average of 30 to 45 days, but this varies based on your lender, your financial situation and the type of refinance.

However, understanding the timeline can help homeowners set realistic expectations and plan for potential delays.

Discuss the timeline with your lender when you apply and aim to be as proactive, responsive and organized as possible to stay on schedule.

Review your Loan Estimate and Closing Disclosure

Borrowers receive a Loan Estimate within three days after applying for a refinance loan and a Closing Disclosure at least three days before closing day.

• Loan Estimate: Provides an overview of the borrower’s expected loan terms, interest rate, monthly payments and total closing costs
• Closing Disclosure: Outlines the final loan terms and all associated costs

Homeowners should carefully review both documents to spot discrepancies between the initial Loan Estimate and the Closing Disclosure.

This helps prevent surprises on closing day and gives the borrower time to address any inconsistencies or concerns prior to the meeting.

Organize your finances

Most of your financial documentation was already reviewed during the underwriting process, but borrowers are responsible for keeping their finances stable ahead of closing day.

This includes avoiding any large purchases, taking out new credit or making any significant financial changes that could affect your credit score or debt-to-income ratio (DTI).

Prepare to pay your closing costs

Confirm the payment method for your closing costs and have it ready for closing day.

Typically, the payment method is a certified or cashier’s check or a wire transfer.

Gather identification and contact information

Have your government-issued ID ready for verification and make sure you have the contact information for your lender, closing agent or attorney in case of any last-minute questions or concerns.

Costs associated with closing on a mortgage refinance

The costs to refinance are among the top determining factors in whether it’s a good idea for a homeowner as they can impact your overall savings.

Generally, refinancing closing costs range from 2% to 4% of the loan amount.

The most common costs and fees include:

• Application fees
• Appraisal fees
• Title search and insurance
• Recording fees
• Prepaid items (homeowners insurance, property taxes, etc.)
• Credit report fees
• Notary fees

For example, if you are refinancing a $300,000 mortgage and closing costs total 2% of the loan amount, you may have to pay around $6,000.

Some lenders offer no-closing-cost refinancing options or allow borrowers to roll the closing costs into the loan amount.

Each of these options has pros and cons, so be sure to thoroughly discuss them with your lender.

What to expect on closing day

Congratulations, you made it to closing day! Let’s review what happens on the actual day of closing.

Who attends the closing?

There may be several people present on closing day to make sure the transaction progresses as smoothly as possible, including:

• Borrower
• Closing agent
• Notary
• Attorney

If you’re curious about who may be present at your closing, ask your lender for details specific to your circumstances.

What documents do I need to sign?

Borrowers are required to sign multiple documents at closing, including:

• Promissory note: Your official agreement to repay the loan according to the specified terms
• Mortgage/deed of trust: Grants the lender the right to foreclose if you default on payments
• Closing disclosure: Summary of the final loan terms, monthly payments and closing costs

Carefully review all documents before signing to make sure they are accurate and match what you agreed to during the application process.

How are the loan proceeds funded?

The lender can initiate the funding process once the documents are signed and verified.

The funds will be disbursed to repay your existing mortgage. If it’s a cash-out refinance, any remaining balance will be distributed to you.

The disbursement process may take a few days.

What is the right of rescission?

Borrowers have a legal right of rescission that allows them to cancel a refinance loan within three business days of signing the documents—without repercussions.

The period allows borrowers to review their decision and make sure they are comfortable with the new loan.

How will I receive the final loan terms and confirmation?

The refinance will become official if the borrower is comfortable with the new loan.

You will receive confirmation of your refinance loan, including details on when your first payment is due, the amount and where to send it.

Keep copies of all closing documents in a secure location, and make sure to verify that your old mortgage has been repaid.

Experience a smooth closing process with Compass Mortgage

At Compass Mortgage, we understand that preparation is key to a smooth and successful closing process.

When you work with us, we will guide you through the refinance process from start to finish, providing tailored solutions to benefit your unique situation.

Uncover your loan options with Compass Mortgage and lock in your new interest rate.