When to Refinance Your Mortgage

Refinancing replaces your current mortgage with a new one — potentially better terms, but with closing costs. It's not always the right move. The decision comes down to one number: the break-even point.

Reasons to refinance

• ▸Lower your rate — reduce your monthly payment and total interest.
• ▸Shorten your term — 30-year to 15-year builds equity faster and slashes total interest.
• ▸Cash-out equity — access home value for renovations, debt payoff, or other needs.
• ▸Remove PMI — if you've gained enough equity.
• ▸Switch loan type — ARM to fixed, or FHA to conventional to drop MIP.
• ▸Consolidate debt — roll high-interest debt into a lower-rate mortgage (use cautiously).

The break-even point

Closing Costs ÷ Monthly Savings = Break-Even (in months)

Example: $4,000 in closing costs ÷ $150/month saved = 27 months to break even. If you'll stay longer than 27 months, refinance. If you'll move sooner, don't.

When refinancing is a mistake

• ▸You'll move before the break-even. All cost, no benefit.
• ▸You reset the clock. Refinancing a 25-year-remaining balance into a new 30-year can lower your payment but raise your total interest, even at a lower rate.
• ▸You cash out for consumption. Trading equity for a vacation or car converts wealth into debt.
• ▸Rates rose since you bought. Refinancing into a higher rate to pull cash increases both rate and balance.

Run the real numbers

The Amortization Calculator with the live rate shows your new payment and total cost. Compare total interest over the years you realistically expect to own, not just the monthly payment — a lower payment on a longer term can cost more in the end.