Question 1

When should I refinance my mortgage?

Accepted Answer

Refinancing typically makes sense when: (1) you can lower your interest rate by at least 0.5–1%, (2) you plan to stay in the home long enough to recoup closing costs through monthly savings, and (3) you can qualify for the new loan. The break-even calculation is the most reliable guide. If your break-even point is 18 months and you plan to stay 10+ years, refinancing is clearly beneficial. If your break-even is 5 years and you might move in 3, the math doesn't work.

Question 2

What is the break-even point on a refinance?

Accepted Answer

The break-even point is the number of months until your accumulated monthly savings equal the upfront closing costs you paid to refinance. For example: if refinancing costs $6,000 and saves you $300/month, your break-even is 20 months. After that point, every month you stay is net positive. To find your personal break-even, divide your total closing costs by your monthly savings. This calculator does that math automatically and shows it prominently.

Question 3

How much does refinancing cost?

Accepted Answer

Refinancing closing costs typically run 2–5% of the loan amount. On a $400,000 loan, that's $8,000–$20,000. Common costs include: loan origination fee (0.5–1% of loan), appraisal ($300–$700), title search and insurance ($1,000–$2,000), credit report fee ($30–$50), and recording fees ($100–$200). Some lenders offer 'no-closing-cost' refinances that roll these fees into the loan balance or offset them with a slightly higher rate.

Question 4

Does refinancing reset my loan term?

Accepted Answer

Not necessarily — it depends on the new term you choose. If you refinance 20 years remaining on your original 30-year loan into a new 30-year loan, yes, you're resetting to 30 years. But you could also refinance into a 20-year or 15-year loan to maintain your payoff timeline (or even accelerate it). Resetting your term lowers monthly payments but can increase total interest paid over the life of the loan, even at a lower rate. The 'Total Interest' figures in this calculator show this trade-off clearly.

Question 5

What credit score do I need to refinance?

Accepted Answer

Most conventional refinance lenders prefer a credit score of 620 minimum, but the best rates are reserved for borrowers with scores above 740. FHA refinances may accept scores as low as 580. Your credit score directly impacts the rate you're offered — a score of 760+ typically qualifies for rates 0.5–1% lower than a score of 620–680. Before refinancing, check your credit report for errors and consider waiting 6–12 months if your score is below 700.

Question 6

Is a 1% rate drop enough to justify refinancing?

Accepted Answer

The 1% rule of thumb is outdated and can be misleading. What matters is the break-even period, not the rate differential alone. A 0.5% rate drop on a $600,000 balance generates $200–$250/month in savings — enough to recoup $6,000 in closing costs in 24–30 months. The same rate drop on a $100,000 balance might only save $40/month, taking 12+ years to break even. Always calculate the specific break-even for your loan amount and expected savings.

Question 7

Should I refinance if I'm years away from paying off my mortgage?

Accepted Answer

Probably not, unless you have very high equity and a compelling rate. Late in a mortgage, most of your payment is principal anyway, so refinancing into a new longer-term loan dramatically increases the total interest you'll pay. If you have, say, 5 years remaining on your mortgage, refinancing into a new 15-year loan would mean 10 extra years of payments. In that situation, you're better off making extra principal payments to pay off your current loan faster.

Question 8

What is the difference between rate-and-term and cash-out refinancing?

Accepted Answer

Rate-and-term refinancing replaces your existing mortgage with a new one at a different interest rate and/or term — the loan balance stays roughly the same (only covering the remaining mortgage balance). Cash-out refinancing lets you borrow more than your current balance, receiving the difference as cash to use for home improvements, debt consolidation, or other purposes. Cash-out refinances typically carry slightly higher rates than rate-and-term refinances and increase your total debt. This calculator covers rate-and-term refinancing only.

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