Guides / Mortgages and home
When refinancing makes sense
Refinancing replaces your current mortgage with a new one. It can lower your payment or total interest, but closing costs and a reset loan term can wipe out the savings.
The key ideas
- Break-even point
- Divide the total closing costs by the monthly savings. If costs are $4,000 and you save $200 a month, it takes 20 months to break even. If you might move before then, refinancing may not pay off.
- Resetting the clock
- Starting a new 30-year loan after paying for years can lower your payment but increase the total interest you pay. Consider a shorter term.
- Cash-out refinancing
- You borrow more than you owe and take the difference in cash. This turns home equity into debt secured by your house.
- Removing mortgage insurance
- Some people refinance from an FHA loan to a conventional loan to drop mortgage insurance once they have enough equity.
- Shop around
- Get Loan Estimates from several lenders, including your current one.
Questions to ask yourself
- How long do I plan to keep this home?
- What is the total interest I will pay under the current loan versus the new one?
- Are there prepayment penalties on my current loan?
Free help
- CFPB refinancing guide
- Questions to ask and a comparison checklist at consumerfinance.gov.
This guide is general education for US households, based on how things typically work. Rules, rates and program details change and vary by lender and state. It is not individual financial, legal or tax advice, and it isn't an offer of credit. Pennies & More isn't paid by any lender or company mentioned here.