TL;DR: Refinancing can lower your payment, shorten your term, or free up cash—but only if the savings outweigh the costs before you plan to move or sell. Run the break‑even math before you sign.
When refinancing makes sense
Refinancing replaces your current mortgage with a new one at a different rate and/or term. It tends to be compelling when:
- Rates have dropped enough to offset closing costs within your expected timeline.
- You want to switch from an ARM to a fixed rate for stability.
- You’re shortening the term to pay off faster with similar (or manageable) payments.
- You’re consolidating a HELOC/second into a single, lower‑rate loan.
What fees to count (don’t skip these)
- Lender and origination fees
- Appraisal and underwriting
- Title, recording, and state/transfer costs
- Points you might pay to buy down the rate
These typically add up to 1–3%+ of the loan amount. Your goal is to recoup them with monthly savings in a reasonable time.
The break‑even you should calculate
- Monthly savings = old payment – new payment (compare P&I, taxes/insurance usually unchanged)
- Break‑even months = total refi costs ÷ monthly savings
- If you might move or sell before break‑even, the refi probably isn’t worth it—unless you’re shortening the term and prioritizing faster payoff.
Model it in minutes
Use Housalyzer’s Refinance Simulator to compare your current loan against one or more refi options, including term changes and points. It calculates payment changes, amortization, and a break‑even timeline:
- Start Refinance → Open the Refinance Simulator
- Want a simple payment first? → Mortgage calculator
Example scenarios to compare
- 30‑yr to 30‑yr: lower rate, same term → focus on monthly savings and break‑even.
- 30‑yr to 15‑yr: much lower rate, higher payment → focus on total interest saved and payoff date.
- Cash‑in refi: bring cash to reduce balance → check how quickly interest savings repay the cash.
- Points vs no points: compare breakeven on paying points versus a slightly higher rate.
Common pitfalls
- Resetting the 30‑year clock when you’re already several years in—erases progress unless the rate drop is compelling.
- Ignoring total interest paid—lower payment isn’t always lower total cost.
- Overlooking prepayment options—you might be better off keeping the current loan and making extra principal payments.
The takeaway
Refinancing is a math problem wrapped in timing. If the costs are recouped well before you plan to move—and the total interest picture improves—it likely makes sense. If not, consider prepaying instead.
Disclaimer: This is not financial advice. Always consult a qualified professional before making mortgage decisions.