When Should You Refinance Your Mortgage?
You should consider refinancing when current rates are at least 0.5-0.75% below your existing rate, when you want to eliminate FHA mortgage insurance by switching to conventional, when you need to pull cash from your home equity, or when you want to shorten your loan term. The key metric is your break-even point — the number of months it takes for your monthly savings to exceed the refinance closing costs.
Key Facts
The Break-Even Formula
Before refinancing, calculate your break-even point: divide your total closing costs by your monthly payment savings. If your closing costs are $4,000 and you save $200/month, your break-even is 20 months. If you plan to stay in the home longer than 20 months, the refinance pays for itself. Our free refinance calculator does this math instantly.
Rate-and-Term vs. Cash-Out Refinance
A rate-and-term refinance simply replaces your current loan with a new one at a lower rate or shorter term. A cash-out refinance lets you borrow more than you owe and receive the difference as cash — useful for home improvements, debt consolidation, or investment. Cash-out refinances typically have slightly higher rates and require more equity (usually 20%+ remaining after the cash-out).
FHA-to-Conventional Refinance Strategy
If you currently have an FHA loan with permanent mortgage insurance, refinancing to a conventional loan once you reach 20% equity eliminates the MIP entirely. This is one of the most impactful refinance moves for FHA borrowers — the annual MIP savings alone (0.55% of the loan amount per year) can easily justify the closing costs.
When Refinancing Doesn't Make Sense
Refinancing may not be worth it if you're planning to sell within 1-2 years (you won't hit break-even), if your current rate is already competitive, if refinancing would restart a 30-year term when you're deep into your current loan, or if closing costs are high relative to the savings. We'll always run the numbers transparently so you can make an informed decision.
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From the Blog
Further Reading
RefinancingWhen Does It Make Sense to Refinance Your Mortgage?
Refinancing can save you thousands — or cost you thousands. Here's a straightforward framework for deciding whether a refi makes sense for your situation right now.
Loan TypesFHA vs. Conventional Loans: Which Is Right for You?
These two loan types cover the majority of home purchases in the U.S. — but they work very differently. Here's a side-by-side breakdown to help you make the right call.