Refinancing replaces your current mortgage with a new one, ideally on better terms. It can be a smart financial move — but only when the numbers work in your favor. Here's how to evaluate it.
Common Reasons to Refinance
- Lower your rate and monthly payment.
- Shorten your term (e.g., 30 to 15 years) to pay off faster.
- Switch loan types, such as moving from an ARM to a fixed rate.
- Tap equity with a cash-out refinance for major expenses.
- Drop mortgage insurance once you have enough equity.
The Break-Even Point
Refinancing has closing costs, often 2–5% of the loan. To find your break-even point, divide your total refi costs by your monthly savings. If it takes 30 months to break even and you plan to move in two years, the refi probably isn't worth it.
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A lower monthly payment can be tempting, but stretching your loan back out to 30 years may cost more in total interest even at a lower rate. Always compare the lifetime cost, not just the monthly payment.
When Refinancing Doesn't Make Sense
If you'll move soon, can't recoup the costs, or would trade a low fixed rate for a higher one, refinancing may not pay off. And sometimes the better move isn't to borrow against your home at all.
Considering Selling Instead?
If refinancing won't get you where you want to be, selling your home for cash is another option — often with no repairs, no listings, and no agent commissions. It can be worth seeing what a cash offer looks like before you commit to a refi.
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