Should You Refinance Your Mortgage?

Refinancing can save tens of thousands of dollars — or quietly cost you money — depending on the details. Here's a simple framework to decide whether it's worth it for you.

What refinancing actually does

Refinancing replaces your current mortgage with a new one, ideally at a lower rate or a shorter term. A lower rate cuts your monthly payment and total interest; a shorter term (say, 30 years down to 15) raises the payment but can save a fortune in interest. Compare scenarios on the mortgage calculator.

The break-even rule

Refinancing isn't free — closing costs typically run 2–5% of the loan. The key question is the break-even point: divide your total closing costs by your monthly savings to see how many months until you come out ahead.

Break-even months = closing costs ÷ monthly savings

If a refinance costs $4,000 and saves $200 a month, you break even in 20 months. Plan to stay in the home past that point and it's likely worth it; if you might move sooner, it may not be.

When refinancing makes sense

• Rates have dropped meaningfully since you took out your loan.
• Your credit has improved, qualifying you for a better rate.
• You want a shorter term and can afford the higher payment to slash total interest.
• You're switching from an adjustable-rate to a fixed-rate loan for stability.

When to think twice

Be cautious if you'll move before breaking even, if refinancing resets a nearly-paid-off loan back to 30 years (stretching out interest), or if you're tapping equity for non-essential spending. Always compare the total cost over the life of the loan, not just the new monthly payment — and shop multiple lenders, since rates and fees vary widely.

Crunch the numbers

Frequently asked questions