When to Refinance Your Mortgage (And When to Leave It Alone)
Refinancing can save tens of thousands — or be an expensive mistake. The breakeven math, and three traps to avoid.
Refinancing replaces your current mortgage with a new one — usually to get a lower rate. The decision is pure math, but the math is easy to get wrong.
The breakeven test
Refinancing has closing costs (typically 2–5 % of the loan). To justify it:
- Calculate your monthly savings (old payment − new payment).
- Divide total closing costs by monthly savings.
- That’s your breakeven point in months.
- If you’ll stay in the home longer than the breakeven, refinance.
Example: closing costs $6,000, monthly savings $200 → breakeven at 30 months. Stay 5+ years? Refinance.
Three traps
- Reset the clock. A 30-year refinance on a 25-year remaining mortgage extends total payments — wiping out rate savings.
- Cash-out refinance for consumption. Using home equity to fund lifestyle is one of the most common ways people destroy wealth.
- Ignoring PMI. If your home value dropped, you may have to pay private mortgage insurance again.
The good reasons
- Lower rate (≥0.75 % lower usually justifies the cost).
- Shortening the term (e.g., 30→15 years).
- Switching from adjustable to fixed.
- Removing PMI because your equity grew.
Run the breakeven. Trust the math.
Run your own numbers with our mortgage & refinance calculator — it works out the monthly payment, the year-by-year amortization schedule and your exact refinance break-even month.
Updated July 19, 2026.
Primary sources
Rates, rules and figures in this article are drawn from the primary sources below. We refresh money pages quarterly — always confirm current terms with the issuer or regulator before acting.
This article is for informational purposes only and does not constitute financial advice. Always do your own research.