Should You Refinance Your Mortgage?
Refinancing replaces your current home loan with a new one — usually to lock in a lower rate, shorten the term, or tap home equity. The key question is whether the long-term savings justify the upfront closing costs, which typically run 2–5% of the loan amount.
Rate-and-Term Refinance
This is the most common type. You keep the same loan balance and only change the rate, term, or both. A drop of 0.75–1% is the traditional rule of thumb, but with low closing costs, even 0.5% can be worthwhile.
Cash-Out Refinance
Borrow more than you owe and take the difference in cash. Useful for home improvements or consolidating high-interest debt, but the new loan is larger and you give up equity. Make sure the cash is going toward something that creates value.
Beyond the Rate
Look at the full Loan Estimate, not just the rate. Origination fees, discount points, appraisal, title insurance, and prepaid items all add up. The break-even calculation above is the single best test of whether a refinance pays off.