Financing
Last updated: Jan 20257 min readWhen to Refinance Your Mortgage
Is refinancing right for you? Calculate the break-even point
Refinancing replaces your current mortgage with a new one, potentially with better terms. But it's not always the right move.
1Reasons to Refinance
Common refinancing goals:
- Lower your rate: Save on monthly payments
- Shorten your term: 30-year to 15-year
- Cash-out equity: Access home value for other needs
- Remove PMI: If you've gained equity
- Switch loan type: ARM to fixed, or vice versa
- Consolidate debt: Roll high-interest debt into mortgage
2The Break-Even Point
Calculate if refinancing makes sense:
Formula:Closing Costs ÷ Monthly Savings = Break-Even (months)
Example:
If you'll stay in the home longer than 27 months, refinancing makes sense.
Formula:Closing Costs ÷ Monthly Savings = Break-Even (months)
Example:
- Closing costs: $4,000
- Monthly savings: $150
- Break-even: 27 months
If you'll stay in the home longer than 27 months, refinancing makes sense.
3When NOT to Refinance
Refinancing might not be wise if:
- You're planning to move soon
- Your credit score has dropped
- You've had the loan for many years
- The rate difference is small (<0.5%)
- You'd reset to a 30-year term
- Closing costs exceed long-term savings
Pro Tips
- Shop multiple lenders—rates vary significantly
- Consider a no-closing-cost refinance if you might move
- Don't restart a 30-year clock if you're 10 years into your mortgage
- Cash-out refinancing has tax implications—consult a professional