When does refinancing actually make sense?
Forget the old "refinance when rates drop 1 percent" rule. Whether a refinance makes sense comes down to two numbers you can compute in a minute, and one trap that hides in plain sight.
Number one: break-even
Refinancing costs money, typically 2 to 5 percent of the loan in closing costs. Divide those costs by your monthly savings and you get your break-even point in months. Plan to stay past it and the refinance pays for itself; plan to move before it and you're paying for a discount you'll never collect. Run yours in our refinance calculator.
Number two: lifetime interest
Here's the trap. Swap a mortgage with 24 years left for a fresh 30-year loan and you just bought six extra years of interest. The monthly payment falls, the total cost can rise, even at a lower rate. The fix is simple: compare lifetime interest, not just the payment, or refinance into a term that matches what you have left.
Good reasons beyond the rate
Rate-and-term isn't the only play. Dropping FHA mortgage insurance once you have 20 percent equity can save hundreds a month. Moving from a variable rate to fixed buys certainty. And a cash-out refinance can make sense when your current rate is already at or above the market.
The step people skip
Most people get one quote and decide. But refinance pricing varies between lenders on the same borrower, same day, and the difference compounds over hundreds of payments. Compare first, decide second.