Mortgage decision

Should I refinance my mortgage?

Refinance if your break-even point — closing costs divided by monthly savings — is shorter than how long you'll keep the loan. Here's the math, worked through with real numbers, including the trade-off a lower payment can hide.

The decision in one line

Two numbers decide this: your break-even point (how many months of savings it takes to repay the closing costs) and your expected time in the loan (how long you'll actually hold it before selling or refinancing again). If break-even is shorter than your expected hold time, refinancing saves money. If it's longer, the new loan likely costs more than it saves.

Worked example: lower payment, same term

A $320,000 balance with 24 years (288 months) remaining at 6.75%, refinanced into a new 30-year loan at 5.75% with $6,000 in closing costs:

Here the break-even is fast — under two years — because the rate drop is meaningful relative to the closing costs. If this borrower plans to stay more than 1.5 years, the refinance pays for itself. But resetting the clock to a fresh 30-year term means paying interest for longer overall, which the total-interest line captures and the monthly-payment number alone does not.

Worked example: same balance, shorter term instead

Same $320,000 balance and closing costs, but refinancing into a 20-year term at 5.75% instead of a fresh 30-year term:

The monthly payment barely moves — it's actually $42 higher — but total interest drops by over $135,000 compared to the 30-year refinance above, because the loan is paid off ten years sooner. This is the trade-off a "lowest payment" search misses: a refinance that doesn't reduce your payment can still be the better decision if minimizing total interest paid matters more to you than monthly cash flow.

What the break-even math leaves out

This framework assumes you keep making the same payment amount for the full comparison period and that the closing costs are paid upfront rather than rolled into the loan balance (rolling them in changes the numbers — run the comparison both ways). It also doesn't account for resetting your amortization schedule, which means more of each early payment goes to interest again, even at a lower rate — the total-interest comparison above is what corrects for that, not the monthly payment alone.

How to decide

1. Get your current loan's exact remaining balance, rate, and months remaining from your servicer.
2. Get real refinance quotes — rate and closing costs — from at least two or three lenders.
3. Run the break-even calculation: closing costs ÷ (current payment − new payment).
4. Compare total interest paid on the new loan against your current loan's remaining interest, not just the monthly payment.
5. Be honest about how long you expect to keep the loan — a shorter expected hold time raises the bar for refinancing to make sense.

Run your own refinance numbers ↗ Read the break-even guide ↗

Frequently asked questions

Should I refinance my mortgage?

Refinance when your break-even point — closing costs divided by your monthly savings — is shorter than how long you plan to keep the loan. If you'll move or refinance again before you reach break-even, the new loan usually isn't worth the closing costs.

What is the break-even point on a refinance?

It's the number of months it takes for your monthly savings to repay the closing costs of the new loan. Divide total closing costs by the monthly payment reduction to get the break-even month count.

Does a lower monthly payment always mean a better refinance?

No. Stretching a loan back out to a new 30-year term can lower the monthly payment while increasing total interest paid over the life of the loan. Compare total interest and costs, not just the monthly number, especially if you're several years into your current loan.

Should I refinance into a shorter term instead of a lower payment?

If your goal is minimizing total interest paid and you can afford a similar or higher payment, refinancing into a shorter term (e.g. 20 years instead of restarting a 30-year clock) usually costs far less in total interest, even if the monthly payment doesn't drop or rises slightly.

How much do closing costs on a refinance typically run?

This varies significantly by lender, loan size, and location, and changes over time — get current quotes from at least two or three lenders rather than assuming a fixed percentage, and include closing costs explicitly in your break-even math.

Source note: Figures above are computed illustrations from entered assumptions, not a quote or offer. All calculations happen in your browser — nothing you enter is sent to a server or stored. This is educational financial information, not a recommendation to refinance.