Refinance only when the math says yes.
A refinance can shave hundreds off the monthly payment or shorten your term by a decade. It can also burn $10,000 in closing costs if you sell the house two years later. The break-even is the only number that matters. We show you how to compute it and which lenders win on math.
Refi snapshot
Updated todayFive reasons to refinance.
Forget the old "1% rule." The right test is your personal break-even, then a check that you will stay in the home longer than that.
1. Rates dropped at least 0.50 points
A 0.50-point drop on a $400,000 loan saves about $135 per month at the 30-year. With $8,000 in closing costs, the break-even is roughly 60 months. That is too long for many households. A 0.75 to 1.00 point drop typically gets the break-even under 36 months, which is the sweet spot for most refinances.
2. You can drop PMI
If your home appreciated and your loan-to-value is now under 80%, refinancing can drop PMI immediately. On a $400,000 loan with PMI at 0.6%, that is $200 per month saved. PMI removal alone often justifies the closing cost.
3. Switching from ARM to fixed
If your adjustable-rate mortgage (ARM) is approaching its first reset, refinancing into a fixed locks in stability. The CFPB warns that ARM resets can move rates 2 to 5 percentage points in a single adjustment if benchmark rates rose.
4. Shortening the term
Refinancing from a 30-year into a 15-year locks in a lower rate and forces faster equity build. The math works best if rates have dropped at least 0.25 points and your budget can absorb the higher payment.
5. Cash-out for better debt
Refinancing to pay off 22% APR credit card debt or a 9% personal loan can save thousands per year. The math works because mortgage interest at 7% beats card interest at 22%, even after extending the loan term. Only do this if the underlying spending behavior has changed. Otherwise the cards refill within a year.
The only formula that matters.
Example: $8,400 in closing costs divided by $280 in monthly savings equals 30 months. If you plan to stay in the home at least 30 more months, the refi pays off. Stay 60 months and you net $8,400 in savings on top of the recouped closing costs.
Include all costs
Origination, appraisal, title insurance, recording, prepaid escrow, and any points purchased. The lender's Loan Estimate breaks these out per CFPB rules.
Use principal+interest savings
Compare apples to apples. Use just the P+I portion of the new payment versus the old. Tax and insurance escrow shifts are unrelated to the refinance economics.
Add a buffer
Most owners stay 8 years on average per the National Association of Realtors. If your break-even is over 60 months, the refi is a coin flip. Look for under 36 months.
Five refinance lenders we recommend.
Ranked by APR plus closing costs on a $400K refinance scenario at 80% LTV with a 760 FICO.
Better.com
Lowest closing costBetter's flat-fee model removes most lender origination charges. The platform handles W-2 borrowers especially well. Closing in 21 days is realistic.
Best for: Borrowers with strong credit who want a fast online close.
Rocket Mortgage
Best for self-employedRocket's underwriters handle non-W-2 income better than most. Higher origination cost than Better, but the approval rate on complex files is meaningfully better.
Best for: Self-employed borrowers who need bank statement underwriting.
loanDepot
Best for cash-outloanDepot allows up to 80% LTV on cash-out refinances and offers 30Y, 20Y, 15Y, and 10Y terms. Strong on jumbo refinances above the conforming limit too.
Best for: Owners refinancing to pull equity for renovation or debt payoff.
Chase Home Lending
Best for existing clientsChase offers up to 0.50 percentage points off the rate for clients with $250K+ in deposits or investments. The discount alone often beats Better's flat fee for high-balance customers.
Best for: Chase Private Client and Premier customers who get rate discounts.
PNC Bank
Best HELOC comboPNC's CHELOC product lets you fix portions of your variable HELOC rate. Refinancing your first lien with PNC streamlines the second-lien approval.
Best for: Borrowers who want a refinance and a HELOC underwritten together.
Run the math, then keep going.
Common questions about refinancing.
How much do you need to drop to make a refinance worth it?
The old rule of thumb was 1.0 percentage point. Today most analysts use a break-even calculation instead. If your closing costs are $4,500 and the new rate saves you $250 per month, the break-even is 18 months. As long as you plan to stay in the home longer, the refi pays off. Use our refi break-even calculator to compute your specific number.
What does a refinance cost?
Refinance closing costs typically run 2% to 3% of the loan amount. On a $400,000 loan that is $8,000 to $12,000. Costs include lender origination (often 0.5% to 1.0%), title insurance, appraisal, recording fees, and prepaid escrow. Some lenders offer no-cost refinances by raising the rate by about 0.25 points.
Can you refinance with less than 20% equity?
Yes, but PMI usually returns. Conventional refinances above 80% LTV require PMI. FHA refinances always include MIP regardless of LTV. The HARP program for underwater loans ended in 2018, but Fannie Mae's RefiNow and Freddie Mac's Refi Possible programs offer reduced costs for low-income borrowers, per the FHFA.
Will a refinance reset the clock to 30 years?
By default, yes. Most refinances reset the term. If you are 7 years into a 30-year and refinance into another 30-year, you commit to 37 total years of payments. Ask the lender for a 23-year term, or refinance into a 15-year if your budget supports it. Custom terms (16Y, 20Y) are available at most major lenders.
Does a refinance hurt your credit score?
Temporarily. The hard inquiry trims the score by 5 to 10 points and the new account drops the average age of credit. Most borrowers recover within 60 to 90 days. Multiple mortgage inquiries within 45 days count as a single inquiry per the major scoring models, so shopping around does not stack the damage.
Cash-out refinance vs HELOC: which is right?
Cash-out refinances replace your first mortgage at a new (often higher) rate. HELOCs add a second lien at a variable rate but leave the first mortgage alone. If your current first-lien rate is below 5%, the HELOC almost always wins because you keep the cheap first mortgage. See our cash-out refi page for the math.
See if your refi pays back in time.
Plug in your old rate, new rate, and closing costs.