Written and reviewed by Jack Gladden, Senior Loan Officer, NMLS #1470164
Updated · 4-minute read · How these guides are written
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Refinancing in brief
- What it is
- Replacing your mortgage with a new one: a different rate, term or loan type, and sometimes cash out.
- Why people do it
- A lower rate or payment, a shorter term, removing mortgage insurance, or leaving an adjustable rate.
- What it costs
- Closing costs typically run 2–5% of the new loan, or a higher rate if you choose a no-closing-cost option.
- The key number
- Your break-even point: closing costs divided by your monthly savings, in months.
- Shortcuts
- FHA, VA and USDA borrowers can often use a streamline refinance with less paperwork.
- The catch
- Starting a new 30-year term can lower the payment but raise the total interest you pay.
Reasons to refinance.
Lower your rate
A lower rate cuts the payment and the total interest, if you stay long enough to recover the costs.
Best forRates below your current rate
Shorten the term
Move from 30 to 15 or 20 years, often at a lower rate, and pay less interest.
Best forHigher income, paying off sooner
Drop mortgage insurance
Refinance an FHA loan into conventional once you have enough equity.
Best forFHA borrowers with rising values
Leave an adjustable rate
Lock a fixed rate before your ARM adjusts.
Best forARMs near their first adjustment
To take equity out, see cash-out refinance; to keep your current low rate and borrow anyway, see HELOCs and second mortgages.
Work out your break-even point.
Break-even (months) = closing costs ÷ monthly savings
If you’ll keep the loan longer than the break-even period, the refinance pays for itself.
| Example | Amount |
|---|---|
| Closing costs | $6,000 |
| Monthly payment savings | $250 |
| Break-even | 24 months |
Illustrative only. If you expect to sell or refinance again within two years, this one wouldn’t pay off. Look at the total interest too: a new 30-year term can lower the payment while costing more over time, so I show you both.
Want your break-even worked out?
Send me your current balance, rate and payment, and how long you plan to stay. I’ll show you the break-even and total cost for each option.
What refinancing costs.
- Typical total
- 2–5% of the new loan amount.
- What’s included
- Lender fees, appraisal, title insurance and escrow, recording, and any points you buy to lower the rate.
- No-closing-cost refinance
- The lender covers the costs in exchange for a higher rate; good if you may move or refinance again soon.
- Rolling costs in
- Adding the costs to the new loan avoids cash at closing but raises the balance.
When it makes sense, and when it doesn’t.
A good fit if
- Today’s rates are meaningfully below yours, often around 0.75 to 1 point or more
- You’ll stay past your break-even point
- You can remove mortgage insurance or shorten the term
- Your credit or income has improved since you bought
Look elsewhere if
- You plan to move within a year or twoBetter: keep your loan; the costs may not pay back
- Your current rate is already lowBetter: a HELOC or second mortgage to borrow without losing it
- You’re far into your loanBetter: compare total interest, not just the payment
Streamline refinances for FHA, VA and USDA loans.
| Loan you have | Streamline option |
|---|---|
| FHA | FHA Streamline: often no new appraisal and less income documentation. |
| VA | Interest rate reduction refinance (IRRRL): a 0.5% VA funding fee, often little paperwork. |
| USDA | USDA streamlined refinance options for existing USDA loans. |
Each requires on-time payments and a real benefit to you, such as a lower rate or a move to a fixed rate.
How we get started.
Send me your current loan
Balance, rate, payment, loan type, and your goal.
I compare options
Rate-and-term, streamline, no-closing-cost and cash-out, with break-even and total interest for each.
Apply and lock
Lock the rate when the numbers work.
Close
Appraisal if needed, then signing; a primary-home refinance has a three-day right to cancel before it funds.
Refinancing, answered plainly.
What is the 2% rule for refinancing?
An old rule of thumb that refinancing only pays when rates are 2 points lower. Today the better test is your break-even point: many refinances pay off with a smaller drop if you’ll stay long enough.
How much does it cost to refinance?
Typically 2–5% of the new loan: about $6,000–$15,000 on $300,000, depending on fees, title costs and any points.
Is it a good idea to refinance my mortgage?
When you’ll stay past the break-even point, or when it removes mortgage insurance, shortens your term or ends an adjustable rate. I’ll run your numbers before you decide.
Does refinancing hurt my credit?
A small, temporary dip from the credit check is common. Rate shopping with several lenders within a short window usually counts as one inquiry. See also: Refinance break-even calculator.
How soon can I refinance?
Often right away for a rate-and-term refinance, though some loan types require a few months of payments first, and cash-out refinances usually need longer ownership.
Can I refinance with no closing costs?
Yes, by accepting a slightly higher rate in exchange for the lender covering costs. See also: Cash-out refinance calculator.
What does refinancing a mortgage mean?
Replacing your current mortgage with a new one, usually to get a lower rate or payment, change the term, switch from an adjustable to a fixed rate, remove mortgage insurance or take cash out. The new loan pays off the old one at closing.
Cash-out refinance
Adjustable-rate (ARM)
Second mortgage & HELOC
Conventional