Complete Guide
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Calculate whether refinancing your mortgage saves money. Compare current vs new rate, closing costs, and break-even timeline to decide if a refi makes financial sense.
When Refinancing Pays Off
Refinancing typically makes sense when you can lower your rate by at least 0.75–1%, plan to stay in the home past the break-even point, and can roll closing costs into savings within 24–36 months.
Cash-out refinancing converts home equity to cash but increases your loan balance and monthly payment — use only for value-adding investments or high-interest debt elimination.
The Break-Even Calculation
Break-even months = total closing costs ÷ monthly payment savings. If closing costs are $4,000 and you save $200/month, break-even is 20 months.
If you are 20 years into a 30-year mortgage and refinance to a new 30-year term, you extend total repayment — even at a lower rate, you may pay more lifetime interest. Consider refinancing to a 15 or 20-year term instead.
Key Takeaways
- Need ~0.75–1% rate drop for refinancing to make sense.
- Calculate break-even months before paying closing costs.
- Avoid resetting to 30 years unless payment relief is critical.
- Shop at least three lenders for the best refi offer.