Money guide

Should I refinance my mortgage?

Refinancing your mortgage is generally worth considering when you can lower your interest rate by roughly 0.5-1 percentage point and you plan to stay in the home past the break-even point, which equals your closing costs divided by your monthly savings. Closing costs typically run about 2-5% of the loan amount, so the longer you stay, the more likely refinancing pays off.

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The rule of thumb, and the break-even math behind it

A widely used guideline says refinancing may make sense if you can drop your rate by roughly 0.5 to 1 percentage point and you will keep the home past the break-even point. The break-even point is simple arithmetic: closing costs divided by your monthly savings.

Say refinancing saves you $200 a month and costs $6,000 to close. That's $6,000 ÷ $200 = 30 months to break even. Stay longer than about two and a half years and the refinance has more than paid for itself; sell or move sooner and the deal likely loses money. The Refinance Calculator computes this break-even month so it can be compared against how long you realistically expect to stay put.

What moves the number

Three inputs drive the outcome: the size of the rate reduction, the closing costs, and how long you stay in the home. Closing costs typically run about 2-5% of the loan amount, which covers items like the appraisal, origination, title, and other fees. A larger rate drop increases monthly savings and shortens the break-even window; higher closing costs push it further out.

For context, the 30-year fixed average was about 6.43% (Freddie Mac). Mortgage rates change constantly, so a current figure is worth checking before running the numbers, and it is compared against the rate held today rather than an older headline number.

The trap: a lower payment can cost more over time

The biggest mistake is judging a refinance by the monthly payment alone. Refinancing into a fresh 30-year term can lower what is paid each month, but it also resets the clock. Restarting at 30 years after, say, 8 years into an original loan stretches repayment over a longer horizon and can mean more total interest over the life of the loan, even at a lower rate.

The more complete comparison is lifetime interest, not just the monthly figure. The Refinance Calculator shows both the new payment and the total interest, so the full picture is visible. Refinancing into a shorter term avoids resetting the clock, which raises the monthly payment but can reduce lifetime interest.

Factors that shift the break-even math

Moving or selling before hitting the break-even point changes the math, since the closing costs may not be recouped in that case. Another factor is whether closing costs are paid upfront or rolled into the loan balance; financing those costs adds interest to them over time.

Quoted rates depend on credit, equity, and loan type, so an average rate is only a starting reference. This is general information to help frame the decision, not financial advice. The Refinance Calculator can take a specific rate, balance, closing costs, and expected time in the home to show whether the math works in a given situation.

Frequently asked questions

How do I calculate my refinance break-even point?

Divide total closing costs by monthly savings. If closing costs are $6,000 and the savings are $200 a month, that's 30 months to break even. Staying in the home past that point means the refinance has covered its own costs.

How much lower does my rate need to be to refinance?

A common rule of thumb is a reduction of roughly 0.5 to 1 percentage point, combined with staying past the break-even point. A bigger rate drop shortens the time it takes to recoup closing costs, which typically run about 2-5% of the loan amount.

Will refinancing to a lower payment save money?

Not always. A lower monthly payment can mask higher total costs if a fresh 30-year term resets the clock and stretches repayment over more years. The fuller comparison is lifetime interest, not just the monthly payment.

What are typical mortgage refinance closing costs?

Closing costs generally run about 2-5% of the loan amount, covering fees like appraisal, origination, and title. On a $300,000 loan, that's roughly $6,000 to $15,000, which is the figure the break-even calculation must recoup.

Sources: Consumer Financial Protection Bureau — Mortgage refinancing; Freddie Mac — Primary Mortgage Market Survey (PMMS).

Last reviewed July 4, 2026 · Editorial policy · This is general information, not financial advice.