Quick Answer: Is It Worth Refinancing to Save $100 a Month?
Generally, it is not worth refinancing just to save $100 a month if you plan to move or sell the house within the next 4 to 5 years. Refinancing costs between $3,000 and $6,000 in closing costs. Saving $100 a month means it will take you 30 to 60 months just to break even on the fees.
The Full Calculation: Finding Your Break-Even Point
Refinancing is not free. When you refinance, you are essentially taking out a brand-new loan to pay off the old one, which means paying title fees, appraisal fees, and origination fees all over again. You must calculate your Break-Even Point.
Let's do the math:
- Estimated Closing Costs to Refinance: $4,500
- Monthly Savings from Lower Rate: $100
- Break-Even Calculation: $4,500 ÷ $100 = 45 Months
In this scenario, it will take you 3 years and 9 months before you actually save a single penny. If you sell the house in Year 3, you actually lost money by refinancing.
What Affects This Number?
The "worth" of a refinance is heavily dictated by three factors:
- Your Loan Size: If you have a massive $800k mortgage, a 1% rate drop might save you $500 a month, making the break-even point incredibly fast. On a $150k mortgage, the savings are minuscule compared to the fixed closing fees.
- Resetting the Clock: If you are 5 years into a 30-year mortgage and you refinance into a *new* 30-year mortgage, you just extended your total debt timeline by 5 years. You might save $100 a month, but you will pay tens of thousands more in interest over the life of the loan.
- No-Closing-Cost Refinances: Some lenders offer to cover your closing costs, but they compensate by giving you a slightly higher interest rate. Your monthly savings will be lower, but your break-even point is immediate.
How to Lower Your Payment Without Refinancing
If you don't want to pay $5,000 in fees just to lower your payment, try these alternatives:
- Request PMI Cancellation: If your home has gone up in value significantly, you can pay ~$500 for a new appraisal. If you have 20% equity, the lender must drop the PMI, saving you $100-$200 a month instantly with no closing costs.
- Mortgage Recasting: If you have a lump sum of cash, apply it to the principal and ask the lender to recast the loan. This lowers your monthly payment permanently for a small processing fee (usually ~$250).
- Shop Homeowners Insurance: Switching insurance providers can often yield $50 to $100 a month in savings.
Use Our Free Calculator
Don't guess on your break-even point. Use our Refinance Calculator to see exactly how long it will take for a lower rate to pay for itself.
Calculate Your Refinance ROI
Input your current loan details and the new rate to see your exact break-even month.
Use the Refinance Calculator →Frequently Asked Questions
When is it a good idea to refinance?
It is generally a good idea to refinance if you can drop your interest rate by at least 0.75% to 1%, you plan to stay in the home for at least 5 more years, or you need to switch from an adjustable-rate to a fixed-rate mortgage.
Can I roll closing costs into the new loan?
Yes, most lenders allow you to roll the closing costs into the new loan balance. However, this means you will be paying interest on those closing costs for the next 30 years.
Does refinancing hurt my credit score?
Refinancing will cause a temporary dip in your credit score (usually 5-15 points) because the lender performs a hard inquiry and you are opening a new credit account while closing an old one. It rebounds quickly.