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
Mortgage Calculator
Compare your current loan against a refinanced rate or term.
Open calculator →Frequently asked questions
When is it worth refinancing a mortgage?
When the interest you'll save outweighs the closing costs before you'd move. Divide closing costs by monthly savings to find your break-even point in months.
How much does it cost to refinance?
Closing costs typically run 2–5% of the loan amount. On a $300,000 mortgage that's roughly $6,000–$15,000, which your monthly savings need to recover over time.
Does refinancing hurt my credit?
There's a small, temporary dip from the lender's hard inquiry, but it's minor. The long-term savings from a better rate usually far outweigh it.
