When Should You Refinance Your Mortgage?
Last updated September 2026
Quick answer
Refinancing usually makes sense when your break-even point — closing costs divided by monthly savings — is comfortably shorter than how long you'll keep the loan. On a $360,000 balance, dropping from 6.25% to 5.5% saves $172.72/month; against $6,000 in closing costs, that's a 34.7-month break-even. But there's a catch most calculators skip: refinancing into a new 30-year term can increase your total lifetime interest even at a lower rate, because it restarts the clock.
The example we'll use throughout
| Current loan | Refinanced loan | |
|---|---|---|
| Balance | $360,000 | $360,000 |
| Rate | 6.25% | 5.50% |
| Monthly P&I | $2,216.58 | $2,043.86 |
| Monthly savings | — | $172.72 |
| Closing costs | — | $6,000 |
| Break-even | — | 34.7 months (~2 yrs 11 mos) |
If you plan to stay in the home past the break-even point, the refinance pays for itself and then some. If you might sell or refinance again before then, it doesn't.
The hidden cost: restarting the clock
Say you're 5 years into your original loan when you refinance. Continuing the old loan for its remaining 25 years costs less in total interest than starting a new 30-year loan at a lower rate — because the new loan spreads a lower rate over 5 extra years:
| Keep old loan (25 yrs left, 6.25%) | Refinance (new 30 yrs, 5.50%) | |
|---|---|---|
| Remaining/new balance | $360,000 | $366,000 (incl. $6,000 costs rolled in) |
| Total payments remaining | $664,974 | $748,055 |
| Total interest from here | $304,974 | $382,055 |
Despite the lower rate and lower monthly payment, the refinance costs $77,081 more in lifetime interest — purely from resetting to a fresh 30-year term. This doesn't mean the refinance was a bad move; it means the monthly savings and the lifetime cost are two different questions, and a rate drop can win one while losing the other.
How to get the savings without the reset
- Match or shorten the term. Refinancing into a 25-year loan instead of a fresh 30-year one keeps most of the rate benefit without giving back years.
- Keep paying your old payment amount. After refinancing to the lower required payment, voluntarily keep sending the old, higher amount — the difference goes straight to principal and can offset or reverse the lifetime-interest cost of the reset. See How to Pay Off Your Mortgage Early.
When it clearly makes sense
- The rate drop is large enough that the break-even point is well within how long you plan to stay.
- You need to remove PMI or FHA's life-of-loan MIP by moving to a conventional loan — see How to Remove PMI.
- You're on an ARM approaching adjustment and want to lock in a fixed rate — see Fixed-Rate vs. ARM.
- You need to pull cash out of your equity — that's a different calculation; see Cash-Out Refinance vs. HELOC.
When it usually doesn't
- You expect to move or refinance again before the break-even point.
- The rate improvement is marginal (well under 0.5%) relative to the closing costs.
- You're early in the loan and a fresh 30-year term would meaningfully delay your actual payoff goals.
Run your real break-even
MortMetrix can compare your actual current loan against a refinance offer — including the lifetime-interest effect of the reset, not just the monthly savings number a lender quotes you.
Run your own numbers
Track your actual mortgage
The figures on this page are an example loan. MortMetrix builds your full amortization schedule from your real balance, rate and term, then shows exactly what any extra payment does to your payoff date, lifetime interest and equity.
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Frequently asked questions
What's the rule of thumb for refinancing?
A commonly cited guideline is at least a 0.5%–1% rate reduction to justify the closing costs — but the more precise answer is your break-even point (closing costs ÷ monthly savings) compared to how long you plan to keep the loan.
Does refinancing always save money in the long run?
Not necessarily. Restarting a 30-year clock partway through an existing loan can increase total lifetime interest even at a lower rate, unless you shorten the new term or keep paying at your old, higher payment amount.
How much does refinancing cost?
Similar to purchase closing costs — roughly 2%–5% of the loan amount, often toward the lower end since some purchase-only costs don't apply.
Can I refinance to remove PMI?
Yes. Refinancing into a new loan with enough equity (or moving from FHA to conventional) is one direct way to eliminate ongoing mortgage insurance.
Will refinancing hurt my credit score?
A hard credit pull causes a small, temporary dip, similar to any loan application. Shopping multiple refinance lenders within a short window is typically treated as a single inquiry by credit scoring models.
Related guides
Cash-Out Refinance vs. HELOC vs. Home Equity Loan
Three ways to borrow against equity, and why a low existing rate usually rules the cheapest-looking one out.
Read moreMortgage Recast vs. Refinance: What's the Difference?
Four ways to use a $50,000 lump sum — the lowest payment and the lowest total interest are not the same path.
Read moreWhat Are Mortgage Points and Are They Worth Buying?
What a point costs, what it buys, and the break-even that decides whether it was worth it.
Read moreHow to Remove PMI From Your Mortgage
The 80% and 78% LTV triggers, how extra payments pull them forward, and how to submit the request.
Read moreFigures on this page are generated from the same amortization engine that powers the MortMetrix dashboard, using the example loan stated in each table. They are estimates based on a fixed-rate loan at a constant rate and are not your actual loan terms. This is educational information, not financial advice.