When refinancing actually pays off

The break-even calculation

Divide the total cost of the refinance by the monthly savings on principal and interest. The result is the number of months you must keep the new loan before the refinance is worth it. Staying past that point is savings; selling or refinancing again before it is a loss.

Our refinance and break-even calculators run this math with your own numbers, including costs that are rolled into the loan balance.

Trap one: restarting the clock

Replacing a loan you are eight years into with a new 30-year term lowers the payment partly because you stretched repayment back out. Compare total interest over the time you plan to own the home, not just the monthly figure. A shorter term often costs slightly more per month and far less overall.

Trap two: rolled-in costs you never see

A no-cost refinance is not free. The costs are paid through a higher rate or a larger balance. That can be the right structure when you may move soon, but you should see both versions side by side before choosing.

Trap three: the cash-out that becomes a habit

Consolidating credit card debt into a mortgage lowers the payment, but it converts short-term unsecured debt into long-term debt secured by your home. It works when the underlying spending pattern changes with it.

Reasons beyond the rate

Removing mortgage insurance, moving off an adjustable rate, removing a co-borrower, or shortening the term are all valid reasons to refinance even when the rate improvement alone is modest.