Refinancing your mortgage replaces your existing loan with a new one — ideally at a lower rate, shorter term, or both. Done right, it saves real money. Done wrong, it resets your amortization clock and costs you more than you save. The [PRIMARY_KW] decision comes down to one number: your break-even point.
The Break-Even Calculation
Here is the math: divide your total closing costs by your monthly payment savings. The result is the number of months to break even. Example: closing costs of $5,000, monthly savings of $150. Break-even: 33 months (2.75 years). If you plan to stay in the home longer than 33 months, refinancing wins. If not, it costs money.
On a $350,000 mortgage, dropping from 7.25% to 6.75% saves approximately $119/month. With $6,000 in closing costs, break-even is about 50 months — just over 4 years. That is worth it for most homeowners planning to stay put. Use our mortgage calculator to model your specific scenario.
Types of Mortgage Refinancing
Rate-and-Term Refinance
The most common type. You refinance to get a lower rate, a shorter term, or both. No cash is taken out. Goal: reduce total interest paid and/or monthly payment.
Cash-Out Refinance
You refinance for more than your current balance and take the difference in cash. Useful for home improvements, debt consolidation, or large expenses. The tradeoff: you are increasing your mortgage balance and potentially your payment. Rates are slightly higher than rate-and-term refinances.
Streamline Refinances (FHA and VA)
Simplified refinance programs for existing FHA or VA borrowers. Reduced documentation, no appraisal required in most cases, and faster processing. Available only to existing FHA or VA loan holders.
When Refinancing Does NOT Make Sense
You are nearly done paying off your mortgage. In the early years of a mortgage, most of your payment is interest. After 20 years, most goes to principal. Refinancing resets the amortization and puts you back to mostly-interest payments — even at a lower rate, you may pay more total interest.
You are moving soon. If you will sell before reaching the break-even point, refinancing costs more than it saves.
Your closing costs are very high. Some lenders advertise "no closing cost" refinances but roll the costs into a higher rate. Always calculate the total cost both ways.
How to Refinance Step by Step
- Calculate your break-even point and confirm it makes sense
- Check your credit score — you need 620+ for conventional, ideally 740+ for best rates
- Get pre-qualified with at least 3 lenders and compare Loan Estimates
- Choose your lender and lock your rate
- Submit your formal application with required documentation
- Allow appraisal, underwriting, and title search (typically 30 to 45 days)
- Review Closing Disclosure 3 days before closing
- Attend closing and sign the new loan documents
Current Refinance Rates (May 2025)
Refinance rates are typically 0.10 to 0.25 percentage points higher than purchase rates for the same loan type. As of May 2025, the average 30-year fixed refinance rate is approximately 7.20% to 7.40%. Check our current mortgage rates page for daily updates.