Should I Refinance My Mortgage?
Refinancing your mortgage can lower your monthly payment, reduce total interest, change your loan term, or help you access home equity - but it isn’t automatically the right move for everyone. The best refinance decision depends on timing, costs, future plans, and how long you’ll stay in the home.
In this guide, we’ll walk through what refinancing really means, when it makes financial sense, how to calculate break-even, and how to decide whether refinancing helps your situation - or quietly costs you more over time.
What Does It Mean to Refinance a Mortgage?
Refinancing means replacing your current mortgage with a new loan. Your old mortgage is paid off, and a new one takes its place - usually with a different interest rate, term, or balance.
Some things stay the same (your home, lender relationship), while others change (payment, interest, payoff timeline). Refinancing is not the same as recasting - a refinance creates a brand-new loan.
Why Do Homeowners Refinance?
- Lower the interest rate
- Reduce the monthly payment
- Switch from ARM to fixed-rate
- Shorten or extend the loan term
- Remove mortgage insurance
- Access equity with a cash-out refinance
Each goal changes the math. Lowering your payment doesn’t always mean saving the most money long-term - which is why break-even matters.
When Does Refinancing Make Sense?
Refinancing usually makes sense when the long-term savings outweigh the upfront costs - and when you plan to stay in the home long enough to benefit.
- Your new payment meaningfully improves cash flow
- You recover closing costs before selling or refinancing again
- Your credit profile has improved
- You’re aligning the loan with long-term goals
How Much Does It Cost to Refinance?
Refinance closing costs typically range from 2%–5% of the loan amount. These can be paid upfront or rolled into the loan.
- Origination and lender fees
- Appraisal
- Title and escrow
- Recording fees
Refinance Break-Even: The Most Important Calculation
Break-even is how long it takes for monthly savings to recover your closing costs. If you sell or refinance again before that point, the refinance likely costs more than it saves.
You can estimate this quickly using the refinance break-even calculator.
Interest Rate vs APR (and Why It Matters)
The interest rate affects your payment. APR reflects the true cost of the loan, including fees. Comparing APR helps avoid misleading offers.
Refinancing to Change Your Loan Term
Switching from a 30-year to a 15-year term can save interest but raises monthly payments. Extending a term lowers payments but increases total interest.
Cash-Out Refinance: When It Helps - and When It Hurts
A cash-out refinance replaces your mortgage with a larger loan and gives you the difference in cash. It can be useful, but it also resets your amortization and increases risk.
For equity planning scenarios, see Refinancing & Equity and compare alternatives like a HELOC.
What You Need to Qualify for a Refinance
- Stable income
- Acceptable credit score
- Reasonable debt-to-income ratio
- Sufficient equity
Use the DTI calculator to understand how your debts affect eligibility.
Common Refinancing Mistakes
- Focusing only on the interest rate
- Ignoring break-even
- Resetting the loan clock without realizing it
- Using cash-out for short-term spending
Refinancing FAQs
How much does a 1% rate drop save?
It depends on your loan balance and term, but even small drops can save tens of thousands over time. Use the refinance calculator to see your numbers.
Should I refinance if I plan to move soon?
Usually no - unless the break-even is very short. Selling before break-even often means the refinance costs more than it saves.
Ready to Run the Numbers?
Estimate your new payment, calculate break-even, and compare refinance options using our free tools.