Book 15 minutes
Refinance
When a refinance makes sense
A refinance replaces your current loan with a new one. It's worth doing when the numbers clearly support your goal. Here's how to tell.
Four good reasons to refinance
Lower your rate or change your terms
Called a rate and term refinance. If today's rates are meaningfully below yours, a new loan can lower your payment or your total interest. You can also move from an adjustable rate to a fixed rate for a predictable payment.
Take cash out
Borrow against your equity for home improvements, a major expense or a stronger cash cushion. Your loan balance goes up, so the plan for that money should be worth it.
Remove mortgage insurance
If your home has gained value or you've paid the balance down, refinancing out of a loan with mortgage insurance may drop that monthly cost. With some conventional loans you can ask your servicer to remove it without refinancing, so we check that first.
Shorten your term
A shorter term usually means a higher monthly payment, but much less interest over the life of the loan and owning your home sooner.
Do the break-even math
Every refinance has costs: lender fees, appraisal, title and escrow. Divide your total costs by your monthly savings and you get the number of months it takes to earn them back. If you'll keep the new loan longer than that, the refinance can make sense. If you won't, it probably doesn't.
A "no-cost" refinance still has costs. They're usually built into a higher rate or added to the loan balance.
When it doesn't make sense
- You plan to sell or move before you reach break-even.
- The savings are small compared with the costs.
- You'd restart a long term on a loan you've paid down for years, so total interest goes up even though the payment goes down.
- The cash out would go to spending that won't hold its value.
- Your current loan has a rate or feature you'd lose and can't get back.
If any of these apply to you, I'll say so. Sometimes the right answer is to keep the loan you have.
What the process looks like
Application, documents, an appraisal if the lender requires one, underwriting, then signing. For most refinances of the home you live in, federal law gives you three business days after signing to cancel, so the loan funds after that window closes.
Not ready to refinance yet?
Join Rate Watch
Get short, plain-English check-ins on where rates are heading and whether a refinance could make sense for you. Unsubscribe anytime.
The text message box on the form above is optional. Consent is not a condition of any purchase or loan. See our Privacy Policy and SMS Terms.
Want to know if a refinance pays off for you?
Bring your current loan statement and I'll run the break-even with real costs.