When refinancing makes sense
Refinancing replaces your current mortgage with a new one — usually to secure a lower interest rate, shorten your term, switch from an adjustable to a fixed rate, or tap home equity. A common rule of thumb is that refinancing is worth considering when you can lower your rate by roughly 0.5–1% and plan to stay in the home past the break-even point on closing costs.
Understanding your break-even point
Refinancing isn't free: expect closing costs of roughly 2–5% of the loan amount. Divide those costs by your monthly savings to find the break-even point in months. If you'll stay in the home longer than that, refinancing typically pays off. Enter your remaining balance as the 'home price' with $0 down to model the new loan.