Should You Refinance Your Mortgage?
Mortgage refinancing means replacing your existing mortgage with a new one — typically to get a lower interest rate, reduce monthly payments, change the loan term or access home equity. The key question is always whether the long-term savings outweigh the upfront costs of refinancing.
Our free mortgage refinance calculator helps you answer this question instantly by comparing your current mortgage with your proposed new mortgage and calculating your break even point — the number of months it takes for your monthly savings to cover the closing costs.
The Break Even Rule
The break even point is the most important number in any refinancing decision. It is calculated by dividing your total closing costs by your monthly savings. If you plan to stay in your home longer than the break even period — refinancing makes financial sense. If you plan to move before reaching break even — refinancing will cost you money.
When Does Refinancing Make Sense?
- Your new interest rate is at least 0.5-1% lower than your current rate
- You plan to stay in the home longer than the break even period
- Your credit score has improved significantly since your original mortgage
- You want to switch from an adjustable rate to a fixed rate mortgage
- You want to tap home equity for major expenses
- You want to shorten your loan term to pay off faster
Typical Refinancing Costs
- Closing costs — typically 2-5% of the loan amount ($4,000-$10,000 on a $200,000 loan)
- Application fee — $75-$300
- Appraisal fee — $300-$600
- Title search and insurance — $700-$900
- Attorney fees — $500-$1,000 in some states
Frequently Asked Questions
How much does refinancing save per month? +
Monthly savings depend on how much you lower your interest rate and your remaining loan balance. As a rough guide, every 1% rate reduction on a $300,000 mortgage saves approximately $150-200 per month depending on remaining term. Use our calculator above with your specific numbers for an exact answer.
How long does it take to break even on a refinance? +
Break even time = Total Closing Costs divided by Monthly Savings. For example, $6,000 in closing costs with $300 monthly savings breaks even in 20 months. Most financial advisors suggest refinancing only makes sense if you plan to stay in the home at least 2-3 years beyond the break even point.
Does refinancing hurt your credit score? +
Refinancing has a temporary minor impact on your credit score. Lenders perform a hard credit inquiry when you apply which typically reduces your score by 5-10 points temporarily. If you shop multiple lenders within a 14-45 day window most credit scoring models count these as a single inquiry. Your score typically recovers within a few months of the new loan starting.
What credit score do I need to refinance? +
Most conventional refinances require a minimum credit score of 620. For the best rates you generally need 740 or higher. FHA refinances may accept scores as low as 580. VA loan refinances are more flexible. The higher your credit score the lower your interest rate — even a small rate difference translates to significant savings over a 30-year loan.
Should I refinance to a 15-year or 30-year mortgage? +
A 15-year mortgage has a lower interest rate and you pay far less total interest but higher monthly payments. A 30-year mortgage has lower monthly payments but you pay more total interest. If you can comfortably afford the higher 15-year payment it saves significantly more long-term. If cash flow is important, a 30-year with a lower rate still saves money versus your current higher-rate loan.