Should I Refinance My Mortgage?
Answer a few honest questions and our Decision Guide will tell you whether refinancing actually pays off, or whether you're better off keeping the loan you have.
Published
For most homeowners, refinancing only makes sense when three things line up: your new rate is at least 0.5% lower than your current one, you're planning to stay in the home long enough to pass the break-even point, and your current mortgage balance is big enough that the savings are meaningful. Bankrate's guidance — backed by the Federal Reserve's consumer guide — is that refinancing generally pays off with a rate drop of half to three-quarters of a point, provided closing costs (typically 3-6% of your loan balance) can be recouped within 2-3 years of monthly savings. The honest math: divide your total closing costs by your monthly savings to get your break-even in months; if you'll stay past that, refinance; if you won't, don't. The decision also tips toward refinancing if your credit score has meaningfully improved since you got the loan (better rates available), if you've built enough equity to drop PMI, or if you have a specific reason like switching from an adjustable-rate mortgage to a fixed rate. Skip the refi if you're planning to move within the break-even window, if your balance is small enough that even a good rate drop doesn't translate to real dollars, or if you can't actually afford the closing costs out of pocket (rolling them into the loan erodes most of the savings).
Sources
- A Consumer's Guide to Mortgage Refinancings — Federal Reserve
- When Should You Refinance Your Mortgage? — Bankrate
- How to Calculate the Break-Even Point on a Mortgage Refinance — NerdWallet