When Should I Refinance?

Refinancing replaces your current mortgage with a new one — ideally at a lower rate, a shorter term, or both. It only makes sense when the savings outrun the cost of getting them. Here is the honest version of that math.

The two questions that actually decide it

Ignore the ads and the round-number “refinance if rates drop 1%” rules. A refinance is worth it when you can answer yes to both of these:

• Does the new rate save you money each month? Lower rate, shorter term, or dropping mortgage insurance all reduce what you pay.
• Will you stay long enough to break even?Closing costs are real money. If you’d sell before they pay back, refinancing loses.

Break-even is the whole game

Your break-even point is the number of months it takes for the monthly savings to repay the closing costs. Stay past it and every month is pure savings; move before it and you paid to lose money.

When refinancing is the wrong move

• Today’s rates are higher than the rate you already have — common, and a hard no for a rate-and-term refinance.
• You’re early enough in a fresh 30-year term that restarting the clock quietly adds years of interest, even at a slightly lower rate.
• You’re moving soon, so you’d never reach break-even.

In those cases the smarter lever is usually your equity, not your rate — which is a different decision entirely.

The quick gut check

New rate clearly below your current one, closing costs that pay back well before you’d move, and a term that doesn’t balloon your total interest: that’s a refinance worth doing. Miss any one of those and it’s worth waiting — or looking at equity instead.