Rates & Loans
When does it make sense to refinance a mortgage?
Updated Jul 1, 2026
The short answer
Refinancing replaces your current mortgage with a new one, often to lower your rate, change your term, or tap equity. It makes sense when the savings from a lower rate outweigh the closing costs of the new loan within the time you plan to keep the home — your break-even point. Because refinancing has its own closing costs, a lower rate alone does not guarantee it is worth it.
Key points
- Refinancing has closing costs, like a purchase loan.
- Compare monthly savings against those costs to find break-even.
- Shortening the term can save interest but raise the payment.
- Cash-out refinancing increases your loan balance.
Running the break-even
Divide the refinance closing costs by your monthly savings to estimate how many months until you come out ahead. If you may move or refinance again before then, the math often does not favor refinancing.
Put this to work
Sources
Every claim above traces to a public government source.