Should I refinance my mortgage?
A lower rate is only half the question. A refinance costs thousands up front, so it's worth it only if you keep the new loan long enough for the savings to pay those costs back. Here is how to check, and the traps that make a refinance look better than it is.
Start with the break-even
Freddie Mac's quick check is to divide the total cost of the refinance by your monthly savings. The answer is the number of months until the lower payment has repaid what you spent to get it. After that, the savings are yours.
That shortcut ignores one thing: a new loan at a lower rate also pays down principal faster. Our refinance break-even calculator gives both the quick answer and a fuller one, the first month when everything you've paid plus what you still owe is lower on the new loan than on the old.
How big a rate drop do you need?
Say you owe $300,000 at 7% with 27 years left, and closing costs are $6,000, paid in cash. Each refinance below keeps the same 27 years:
| Rate drop | New rate | Payment lower by | Quick break-even | Full break-even | Quick break-even at $9,000 costs | Saved over the loan |
|---|---|---|---|---|---|---|
| 0.5 pt | 6.5% | $96.78/mo | 5 yrs 2 mo | 4 yrs | 7 yrs 9 mo | $25,357 |
| 0.75 pt | 6.25% | $144.39/mo | 3 yrs 6 mo | 2 yrs 8 mo | 5 yrs 3 mo | $40,791 |
| 1 pt | 6% | $191.48/mo | 2 yrs 8 mo | 2 yrs | 4 yrs | $56,048 |
| 1.5 pt | 5.5% | $284.03/mo | 1 yr 10 mo | 1 yr 4 mo | 2 yrs 8 mo | $86,030 |
A half-point drop saves $97 a month and takes 5 yrs 2 mo to repay $6,000 by the quick measure. A one-point drop cuts that to 2 yrs 8 mo. Every drop in the table comes out ahead if you keep the loan to the end, but few people do. The column that matters is the break-even, compared with your plans. $6,000 is on the low side, too: at $9,000, 3% of the balance, every quick break-even is about 1.5 times as long.
Calculated with the same engine as our calculators, rounding interest to the cent each month. Payments are principal and interest only.
How long will you stay?
Break-even only helps if you're still in the loan when you reach it. Freddie Mac puts it simply: if you might move in two years but need three to recover the costs, the refinance likely isn't worth it. Selling, or refinancing again when rates fall further, ends the loan just as surely as paying it off. Be honest about the odds of a job move, a growing family or a downsize within the break-even window.
Don't reset the clock by accident
Lenders often quote a new 30-year loan, which makes the payment drop look bigger. With the same one-point drop to 6%:
- Keeping 27 years, the payment falls $191.48 and you pay $56,048 less over the life of the loan.
- Starting a fresh 30 years, the payment falls $264.79, but you add 3 yrs of payments and the lifetime saving shrinks to $15,044.
The longer term isn't always wrong; a lower required payment has value if money is tight. But if you take it, consider paying your old amount anyway and sending the difference as extra principal. Our guide to making extra principal payments shows how. Freddie Mac also notes that the simple break-even doesn't apply to cash-out refinances or term reductions, such as moving from 30 to 15 years, where the payment may go up.
Cash-out refinancing
A cash-out refinance replaces your loan with a larger one and pays you the difference. Freddie Mac notes that these generally have a slightly higher rate than a refinance of just your balance. Fannie Mae generally requires the loan being paid off to be at least 12 months old, and at least one borrower to have been on the title for six months (Selling Guide B2-1.3-03).
In the example, taking $50,000 out at 6.25% over 30 years, with the $6,000 of costs rolled in, makes the new loan $356,000. The payment rises from $2,063.44 to $2,191.95, and interest from here grows from $368,559 to $433,105. The cash is secured by your home, so compare it with a home equity loan or line of credit, which leaves your first mortgage and its rate alone.
What closing costs include
Freddie Mac estimates refinancing costs at 3% to 6% of the loan: appraisal, credit report, lender origination and underwriting fees, title services, recording and, in some states, attorney fees. Offers of a "no-cost" refinance usually mean a higher rate or costs added to the loan, which Freddie Mac warns may cost more over time. Get Loan Estimates from more than one lender and compare the rate and the total costs together.
Refinancing to drop PMI or FHA mortgage insurance
A conventional loan needs no mortgage insurance at 80% or less of the home's value (Fannie Mae Selling Guide B7-1-01), and a refinance uses a new appraisal, so a rise in home prices counts. That can make a refinance worth it even when the rate drop alone isn't: add the premium you'd stop paying to the monthly savings before you work out the break-even.
- On a conventional loan, you may not need to refinance at all. See how to get rid of PMI for the 80% and 78% rules and the appraisal route.
- On most FHA loans made since mid-2013, refinancing to conventional is the main way to end MIP early. See how to remove FHA mortgage insurance.
If you only want a lower payment: consider a recast
If your rate is already about as low as today's and you have a lump sum, a recast can lower your payment for a servicer fee instead of closing costs: you pay down principal and the servicer recalculates the payment over the months you have left. Try the mortgage recast calculator, and see mortgage recast vs refinance for a side-by-side comparison.
A quick checklist
- Find your balance, rate and months left on your latest statement.
- Get at least two Loan Estimates, at your remaining term and at any term you're considering.
- Work out the break-even for each, including any mortgage insurance you'd drop.
- Compare it with how long you expect to keep the loan, with a margin for surprises.
Related tools
- Refinance break-even calculator: quick and full break-even, and total cost over the loan.
- 15 vs 30-year mortgage calculator: what a shorter term costs each month and saves overall.
- Mortgage recast calculator: a lower payment without a new loan.
- PMI removal calculator: when PMI can come off without refinancing.
For education only; not financial advice. The rates and closing costs in the examples are assumptions, not offers, and your Loan Estimate is what counts. Lender and loan-program rules vary. Sources checked September 23, 2026.