When and Why to Refinance Your Mortgage

What Does Refinancing Mean?

Refinancing replaces your existing mortgage with a new loan, typically at a different interest rate or term. Refinancing involves closing costs — usually 2–5% of the loan amount.

The Break-Even Point

The break-even point is how long it takes for your monthly savings to offset the closing costs. If refinancing saves you $200 per month and costs $4,000 in closing costs, your break-even is 20 months.

Rate-and-Term vs. Cash-Out Refinance

A rate-and-term refinance simply changes your interest rate, loan term, or both. A cash-out refinance allows you to borrow more than your current balance and receive the difference in cash.

Signs It May Be Time to Refinance

Consider refinancing if current rates are at least 0.5–1% lower than your existing rate, if your credit score has improved significantly, or if you need to access equity for a major financial goal.