Mortgage refinancing means taking out a new mortgage to pay off and replace the existing one. Homeowners refinance for different reasons, including changing the interest rate, monthly payment, loan term, or borrowing additional cash from home equity.
Estimate refinance break-even
Compare estimated closing costs with monthly payment savings, then review the effect of a new loan term.
Open Refinance Break-Even Calculator →Rate-and-term refinance
A rate-and-term refinance changes the loan's interest rate, term, or both without primarily increasing the balance to take cash out. A lower monthly payment can come from a lower rate, a longer term, or a combination, so compare more than the payment alone.
Cash-out refinance
A cash-out refinance replaces the old mortgage with a larger new mortgage and provides some of the difference as cash, subject to eligibility and equity requirements. This converts home equity into debt secured by the home.
Refinancing has costs
A refinance is a new mortgage transaction and can involve lender charges, appraisal or valuation costs, title or settlement costs, points, and other expenses. “No-closing-cost” offers generally shift the cost through a higher rate, lender credit, or a larger loan balance rather than making the transaction costless.
Break-even is useful but incomplete
A simple break-even estimate divides closing costs by expected monthly savings. It can show how long it may take to recover upfront costs, but it does not capture every effect of resetting the loan term, financing costs, changing equity, taxes, or opportunity cost.
Compare the Loan Estimate
When you apply for a refinance covered by the Loan Estimate rules, compare the new rate, APR, projected payments, closing costs, lender credits, cash to close, prepayment terms, and total cost information.
Bottom line
Refinancing can lower some costs or change the structure of a mortgage, but the result is transaction-specific. Compare the new loan with the remaining cost and payoff path of the current loan rather than relying on a fixed rate-drop rule.