Compare your current loan vs a new loan and find your break-even point.
You should consider refinancing your mortgage when current interest rates are at least 0.5% to 1% lower than your existing rate, as this is typically enough to generate meaningful monthly savings. Other strong reasons to refinance include a significant improvement in your credit score since you originally obtained the loan, wanting to switch from an adjustable-rate mortgage (ARM) to a fixed-rate mortgage for payment stability, or wanting to shorten your loan term from 30 years to 15 years to build equity faster and pay less total interest. Some homeowners also refinance to tap into home equity for major expenses through a cash-out refinance. The key decision factor is always whether the monthly savings will offset the closing costs within a reasonable timeframe, which is known as the break-even point. Use this calculator to determine your specific break-even period.
The break-even point is the number of months it takes for your cumulative monthly savings from refinancing to equal the total closing costs you paid upfront. It is calculated by dividing your total closing costs by your monthly payment savings. For example, if refinancing costs $6,000 in closing costs and you save $200 per month on your payment, your break-even point is 30 months (2.5 years). If you plan to stay in your home longer than the break-even period, refinancing is generally a smart financial move. Most financial experts recommend that refinancing makes sense when your break-even point is 24 months or less, though this depends on your individual circumstances and how long you plan to stay in the home.
Refinancing typically costs between 2% and 5% of the new loan amount in closing costs. For a $300,000 mortgage, that translates to approximately $6,000 to $15,000 in total fees. Common refinance closing costs include an appraisal fee ($300 to $700), title search and title insurance ($500 to $2,000), loan origination fee (0.5% to 1.5% of the loan amount), credit report fee ($30 to $50), recording fees ($50 to $250), and prepaid items such as homeowners insurance premiums and property tax escrow. Attorney fees may also apply depending on your state. The lender is required to provide you with a Loan Estimate within three business days of your application, itemizing all expected costs so you can make an informed decision.
Yes, no-closing-cost refinancing is available from many lenders and can be an attractive option in certain situations. In a no-closing-cost refinance, the lender covers all closing costs in exchange for a slightly higher interest rate, typically 0.125% to 0.375% above the standard rate. This means you pay nothing out of pocket at closing, but your monthly payment will be slightly higher than it would be with the lower rate. This option is particularly appealing if you do not plan to stay in the home for many years, since you avoid the upfront costs that might not be recouped before you sell or refinance again. However, over the full 30-year life of a loan, the higher rate will result in paying significantly more total interest compared to paying closing costs upfront. Run the numbers through this calculator with both scenarios to see which option saves you more in your specific situation.
Calculate savings from FHA or VA streamline refinance programs with reduced documentation and faster processing.
Calculate your blended interest rate when combining multiple loans or comparing a first and second mortgage structure.
See how extra monthly or one-time payments can shorten your loan term and reduce total interest paid.