With rates dropping, millions of homeowners are wondering if refinancing makes sense. The answer depends on simple math — here's how to calculate it.
The Break-Even Formula
Closing costs ÷ monthly savings = months to break even.
Example: $4,000 in closing costs ÷ $200/month savings = 20 months to break even. If you plan to stay in the home longer than 20 months, refinancing makes financial sense.
When Refinancing Makes Sense
- Your current rate is 1%+ higher than today's rates
- You plan to stay in the home 3+ years
- You have 20%+ equity (avoid PMI on the new loan)
- Your credit score has improved since your original loan
When It Doesn't
If you're within 10 years of paying off your mortgage, refinancing to a new 30-year term means paying interest much longer. Consider a 15- or 20-year refi instead. Also skip if your closing costs exceed $6,000 and monthly savings are under $100.
Get quotes from at least 3 lenders. Rates can vary 0.5%+ between lenders on the same day.
