When Does Refinancing Your Mortgage Make Sense?

Refinancing replaces your current mortgage with a new one, usually to get a lower rate, a shorter term, or to tap equity. Because it comes with its own closing costs, the key question is whether you'll keep the loan long enough to come out ahead.

The break-even test

Divide your total refinancing costs by the monthly saving from the new payment. The result is the number of months to break even. If you'll stay in the home well past that point, refinancing likely pays off; if you might move sooner, it may not.

Good reasons to refinance

• Rates have fallen meaningfully since you took out the loan.
• You want to shorten the term (e.g. 30 to 15 years) and can handle a higher payment.
• You're switching from an adjustable rate to a fixed rate for predictability.
• You need to remove PMI or consolidate higher-interest debt.

Estimate your monthly savings and break-even point with the refinance calculator below.