Refinancing replaces your current mortgage with a new one. Done at the right time, it can save thousands. Done carelessly, it can cost you more than you gain.
Common reasons to refinance
Homeowners refinance to lower their rate, switch from an ARM to a fixed rate, shorten the term, remove PMI or tap equity with a cash-out loan. Each has different tradeoffs for monthly payment, total interest and risk.
The break-even test
Divide your closing costs by your monthly savings to find the number of months to recoup costs. If refinancing costs $6,000 and saves $250 per month, break-even is 24 months. Only refinance if you expect to keep the loan beyond that point.
Watch out for term resets
Refinancing a loan with 22 years left into a new 30-year term can lower the payment while raising lifetime interest. Consider choosing a term close to your remaining years, or keep making your old payment to preserve the payoff date.
Try the numbers
Use our Mortgage Refinance Calculator to see this in practice. With its default example (Current loan balance: $300,000; Current interest rate: 7.25%; Years remaining: 27), it shows monthly savings: $314. Adjust the inputs to match your situation.
Key takeaways
- Break-even months = closing costs ÷ monthly savings.
- Compare lifetime interest, not just the payment.
- Cash-out refinances turn home equity into new debt at a new rate.
This article is for general education and is not personalized financial, tax or legal advice. Rules and limits change; confirm current figures with official sources such as IRS.gov, SSA.gov and StudentAid.gov, or consult a qualified professional. © 2026 FinanzCalc.