When Should You Refinance?
Refinancing isn't always worth it. Here's how to calculate your break-even point and know exactly when the numbers make sense.
The Break-Even Rule
The break-even point is when your cumulative monthly savings equal your closing costs. If you plan to stay in the home past the break-even point, refinancing saves you money. If you'll move before then, you'll lose money.
Break-Even Months = Closing Costs ÷ Monthly Savings
Good Reasons to Refinance
Rates dropped 0.5–1%+ from your current rate
Even a 0.5% reduction on a $400K loan saves ~$115/month — $41,000 over the remaining term.
You want to switch from ARM to fixed
If your adjustable rate is set to adjust higher, locking in a fixed rate eliminates future payment uncertainty.
You want to shorten your loan term
Refinancing from a 30-year to a 15-year typically raises payments but dramatically cuts interest paid.
You need to remove PMI
If your home has appreciated to 20%+ equity but you still pay PMI, a new appraisal via refinancing can eliminate it.
You want to tap equity
A cash-out refinance can fund renovations, debt consolidation, or other large expenses at mortgage rates.
Your credit has improved significantly
If your score has jumped 60–80+ points since origination, you may qualify for a meaningfully better rate.
See What This Looks Like for Your Situation
Every mortgage decision depends on your numbers, timeline, and goals. We'll break it down clearly so you know what actually makes sense.
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When NOT to Refinance
You're planning to sell within 2–3 years (won't recoup closing costs)
You've already paid most of your loan down (most payment is now principal, not interest)
Your rate would only drop by 0.25% or less
You're extending from a 15-year to a 30-year just to lower payments
Your credit has declined since origination
Calculate your refinance savings
Use our free refinance calculator to find your break-even point.
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