Refinancing a mortgage may help lower your monthly payment, reduce your interest rate, shorten your loan term, or help you access home equity.
However, refinancing is not always the right financial move. Whether refinancing makes sense depends on factors like refinance closing costs, monthly savings, interest rates, and how long you plan to stay in the home.
Use our calculator below to estimate your refinance break-even timeline.
REFINANCE BREAK-EVEN CALCULATOR
Common Reasons Homeowners Refinance
Homeowners refinance for many different reasons depending on their financial goals.
Common reasons include:
- Lowering the interest rate
- Reducing monthly mortgage payments
- Switching from an adjustable-rate mortgage to a fixed-rate mortgage
- Shortening the loan term
- Accessing home equity through a cash-out refinance
- Removing FHA mortgage insurance
Refinancing may improve cash flow or reduce total interest costs over time depending on the new loan terms.
When Refinancing Usually Makes Sense
Refinancing may make financial sense when the long-term savings outweigh the upfront refinance costs.
Refinancing is commonly beneficial when:
- Interest rates are significantly lower than your current rate
- Your monthly payment decreases meaningfully
- You plan to stay in the home for several years
- Your refinance break-even timeline is relatively short
- Your credit score has improved since obtaining the original mortgage
For many homeowners, the biggest factor is how long they plan to stay in the property after refinancing.
When Refinancing May NOT Make Sense
Refinancing may not always be worth the cost.
Refinancing may be less beneficial when:
- Refinance closing costs are very high
- Monthly savings are small
- You plan to move soon
- You are restarting a long loan term late into your current mortgage
- Interest rates have not improved significantly
In some situations, refinancing could increase total interest paid over the life of the loan even if the monthly payment decreases.
Refinance Break-Even Explained
A refinance break-even point is the amount of time it takes for your monthly savings to recover your refinance closing costs.
The basic formula is:
Break-Even Point = Refinance Closing Costs ÷ Monthly Savings
For example:
- Refinance costs: $6,000
- Monthly savings: $300
Estimated break-even timeline:
- About 20 months
If you plan to stay in the home longer than the break-even period, refinancing may help you save money over time.
Example Refinance Scenario
Imagine a homeowner currently paying:
- $2,500 monthly mortgage payment
- 7.0% interest rate
After refinancing:
- New payment: $2,200
- New interest rate: 6.0%
- Refinance closing costs: $6,000
Estimated monthly savings:
- $300
Estimated refinance break-even:
- Approximately 20 months
In this scenario, refinancing may make sense if the homeowner plans to remain in the home beyond the break-even timeline.
Other Costs to Consider When Refinancing
Before refinancing, homeowners should consider additional costs and factors such as:
- Appraisal fees
- Title fees
- Escrow costs
- Loan origination fees
- Property taxes and insurance
- Resetting loan amortization
These expenses can affect total refinance savings.
Cash-Out Refinance vs Traditional Refinance
A traditional refinance replaces your mortgage with a new loan that may have better terms or a lower rate.
A cash-out refinance allows homeowners to borrow against home equity and receive cash at closing.
Cash-out refinances often increase the loan balance and may increase total borrowing costs over time.
FAQ
Is refinancing worth it in 2026?
Refinancing may be worth it if interest rates improve, monthly savings exceed refinance costs, and you plan to stay in the home long enough to recover the upfront expenses.
What are typical refinance closing costs?
Typical refinance closing costs often range from 2% to 6% of the loan amount depending on the lender and loan type.
What is a good refinance break-even point?
Many homeowners look for a break-even timeline that fits within the number of years they plan to remain in the property.
Does refinancing lower monthly payments?
Refinancing may lower monthly payments if the new loan has a lower interest rate, longer loan term, or both.
Does refinancing hurt your credit score?
Refinancing may temporarily impact your credit score because lenders perform a credit inquiry during the application process.