When to Refinance Your Mortgage (And When to Wait)
Refinancing can save you thousands — but only if the timing and numbers are right. Here's the calculation every homeowner should know.
Financial Writer
The Break-Even Calculation
Refinancing costs 2–6% of your loan balance in closing costs. To know if it's worth it, calculate your break-even point: closing costs ÷ monthly savings = months to break even. If you plan to stay longer than that, refinancing makes financial sense.
The Rate Drop Rule of Thumb
The old "1% rule" (refinance when you can drop 1%) is outdated. Use the break-even calculation instead. A 0.5% drop on a $500,000 loan saves $1,500/year — breaking even on $10,000 in closing costs in under 7 years.
When NOT to Refinance
If you're more than halfway through your loan term, you've already paid most of the interest. Refinancing resets the amortization schedule, meaning you'll pay more interest again in the early years of the new loan.
Cash-Out Refinance
Borrowing against your home equity through a cash-out refinance is lowest-cost debt available, but increases your loan balance and risk. Use for home improvements that add value — not for discretionary spending.
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