Should You Refinance?

Refinancing is worth it when you will keep the loan long enough to pass the break-even point, where accumulated monthly savings exceed the closing costs. A common rule of thumb is that a rate drop of about 0.75 to 1 percentage point makes it worth investigating. Always weigh how long you plan to stay in the home against the upfront cost.

The break-even point is the number of months it takes for your monthly savings to recover the cost of refinancing. You calculate it by dividing total refinance costs by monthly savings — for example, $6,000 in costs and $250 in monthly savings gives a 24-month break-even. If you sell or refinance again before then, the refinance costs you money.

Refinance closing costs typically run about 2% to 5% of the loan amount, covering lender fees, appraisal, title, and recording. On a $300,000 loan that is roughly $6,000 to $15,000. Some lenders offer "no-cost" refinances that fold these fees into a higher rate or the loan balance, so you pay over time instead of upfront.

Not necessarily — a lower rate reduces your monthly payment, but if you restart the clock with a fresh 30-year term you can pay more total interest despite the lower rate. To truly save, compare lifetime interest on both loans and consider keeping a shorter remaining term. The monthly payment going down does not automatically mean the loan is cheaper overall.

Skip refinancing if you plan to move before reaching break-even, if the new rate is not meaningfully lower, or if closing costs are large relative to your savings. It also rarely helps if you are far into an existing loan, since restarting the term can erase the interest progress you have already made. Run the break-even math before committing.