When does refinancing make sense?
Refinancing replaces your mortgage with a new one. It makes sense when the money you save each month pays back your closing costs before you plan to sell or refinance again. That moment is the break-even point:
If you expect to stay in the home well past the break-even point, refinancing is usually worth it. An old rule of thumb says to refinance when you can cut your rate by about 1%, but the break-even math is a better test.
Watch out for resetting the clock
Moving from 27 years left to a new 30-year loan lowers your payment, but it adds three years of payments and can raise the total interest you pay. That is why this calculator shows both monthly savings and lifetime savings. To save the most, choose a new term equal to or shorter than the time left on your current loan.
Types of refinance
- Rate-and-term: lowers your rate, changes your term, or both.
- Cash-out: borrows more than you owe and gives you the difference in cash. Rates are often a bit higher.
- Streamline (FHA, VA IRRRL): faster refinances for government loans with less paperwork.
Typical refinance closing costs
Closing costs often run about 2% to 6% of the loan amount. They include appraisal, title insurance, origination fees and recording fees. A "no-closing-cost" refinance usually means you pay through a higher rate or by adding the costs to your balance.
Frequently asked questions
How much does my rate need to drop to refinance?
There is no fixed number. Calculate your break-even point: if you will keep the loan longer than the months needed to recover closing costs, the refinance can pay off even with a small rate drop.
Does refinancing hurt my credit?
Applying causes a hard inquiry and a new account, which may lower your score slightly for a short time. Rate shopping within a short window is usually counted as one inquiry.
Can I refinance with closing costs rolled in?
Yes. Many lenders let you add closing costs to the new balance. You pay no cash upfront, but you pay interest on those costs over the life of the loan.
How soon can I refinance after buying?
Many conventional loans have no waiting period, though some lenders and cash-out or government programs require several months of payments first.
Estimates only. Your actual rate and costs depend on your credit, equity, lender and market conditions.