Should I Refinance My Mortgage?

The Break-Even Rule — The Only Test That Matters

Everybody asks about the rate. The rate is not the answer — how long the saving takes to pay back the closing costs is. Refinancing is not free: closing costs typically run 2% to 5% of the loan amount, covering origination, an appraisal, title work and recording fees. The formula is simple: closing costs ÷ monthly savings = break-even months. Stay longer than the break-even point and refinancing saves you money; sell or refinance again before then and it probably costs you money — whatever the rate said.

Two details complicate it. The first is the term: a new 30-year loan restarts the clock, and the extra years of interest can outweigh years of monthly savings, as the worked example below shows. The second is that the monthly saving depends on both the rate and the term — stretching the term lowers the payment even without a better rate, which can make a bad refinance look good. Check total interest, not just the payment.

Worked Example: When Refinancing Pays

Take a $300,000 loan balance with 25 years left, currently at 7.5%. The new loan on offer is 6.5% for 30 years, with $6,000 in closing costs — 2% of the loan. Run those inputs through the Refinance Calculator:

The maths is straightforward: $6,000 ÷ $320.77 = 18.7 months, rounded up to 19. Stay past 19 months and every month after that banks $320.77. On the monthly-payment test, this refinance is clearly worth it. But that test is not the whole story, as the next section shows.

The Term-Reset Trap

The same example, viewed over the whole life of the loans, tells a different story. The current loan, with 25 years left at 7.5%, will charge $365,092.06 in total interest. The new 30-year loan at 6.5% will charge $382,633.47 — $17,541.41 more — even though the rate is a full point lower. The monthly saving is real, but the clock restarted: 25 years of payments became 30, and five extra years of interest wiped out the benefit of the lower rate. On the monthly payment, this refinance looks like a win; on total interest, it loses money.

The fix is simple: refinance into the same remaining term instead of a new 30 years. Take the same $300,000 balance at 7.5% with 25 years left, and refinance to 6.5% for 25 years instead of 30. The new payment is $2,025.62 — a smaller saving of $191.35 a month — and the break-even stretches to 32 months (about 2.6 years). But total interest on the new loan is $307,686.45, which is $57,405.61 less than the current loan's $365,092.06. Smaller monthly saving, far better lifetime result — and the same payoff date. Always run the calculator twice: once with a new 30-year term, once matching your remaining term, and compare both the payment and the total interest.

Worked Example: When Refinancing Does Not Pay

Now the other side. Suppose your current rate is 6.5% with 25 years left on a $300,000 balance, and you are offered today's average: 7.11% for 30 years, with the same $6,000 in closing costs. The current payment is $2,025.62; the new payment is $2,018.12 — a saving of just $7.50 a month, and only because the term stretches from 25 years to 30. The break-even is $6,000 ÷ $7.50 = 800 months — about 67 years, far beyond the life of the loan. And total interest on the new loan is $426,522.90, against $307,686.45 on the current loan: you would pay $118,836.45 more in interest for the privilege of saving $7.50 a month. The calculator's verdict is blunt: not worth it.

With the 30-year fixed rate at 7.11% in Freddie Mac's survey for the week ending November 12, 2026, anyone holding a loan below that rate has no rate reason to refinance — trading a cheaper loan for a more expensive one, and paying closing costs for the privilege. Check the current mortgage rates page and compare them with your own rate before starting an application. If your rate is already below today's average, the honest answer is usually to stay put.

What Refinancing Costs

Closing costs on a refinance typically run 2% to 5% of the loan amount — $6,000 to $15,000 on a $300,000 loan. The $6,000 in the worked examples sits at the low end of that range. Always get the figure in writing: a lender's Loan Estimate breaks out every fee, and it is the number to put in the calculator, not a guess. A refinance that breaks even in 19 months at $6,000 of costs takes 32 months at $10,000 — the costs move the answer as much as the rate does.

Beware the "no-closing-cost" refinance. The costs do not disappear — they move into a higher interest rate or onto the loan balance. That can be the right trade if you plan to move soon, because you pay nothing upfront and the higher rate only costs you while you hold the loan. But keep the loan for years and you pay for those costs every month instead of once. A cash-out refinance works differently: you borrow more than the current balance and take the difference in cash, with lenders commonly capping the new loan at 80% of the home's value. Compare it with a home equity loan or line of credit first.

When Refinancing Makes Sense

Refinancing is worth considering when several of the following are true. Your rate can fall by at least half a percentage point — a common rule of thumb is a drop of 0.5 to 1 point — and you plan to stay past the break-even point. You can drop PMI: if your home has gained value or you have paid the balance down to 80% of the original value, a refinance can remove mortgage insurance — though ask your servicer first, because you may be able to cancel PMI without refinancing. You want to shorten the term: refinancing from 30 years to 15 years raises the payment but builds equity far faster — and the 15-year fixed rate, 6.45% in the latest Freddie Mac survey, is below the 30-year rate. The break-even test still applies to all of them.

When Refinancing Does Not Make Sense

Refinancing will not save everyone money, and in several common situations it actively loses money. Your rate would go up: if today's rates are higher than your current rate, as in the second worked example, there are no savings to collect — only a bigger payment and a closing-cost bill. You plan to move soon: selling before the break-even point means the closing costs were never repaid. You are nearly paid off: in the final years of a mortgage, most of each payment is principal — refinancing restarts the interest-heavy early years and throws away the position you built. You would reset the term without thinking: five years into a 30-year loan, a new 30-year term starts you over, and the extra years of interest can outweigh the rate saving. If any of these apply, the best decision is usually to wait — and to put the money toward extra principal payments instead, which cut interest with no closing costs. The Mortgage Payoff Calculator shows what extra payments do to your loan.

How to Run Your Own Numbers

Gather six figures before you decide: your remaining balance, current interest rate, years left on your loan, the new rate you have actually been quoted, the closing costs from the lender's Loan Estimate, and how long you realistically plan to stay. Put them into the Refinance Calculator and read three things: the new monthly payment, the break-even point, and the total interest saved. Then run it again matching your remaining term. If the break-even is shorter than your planned stay and the total interest falls, the refinance is worth doing. If either test fails, it is not — however attractive the new rate looks. For the full picture of what your current payment is made of, see our guide to the mortgage payment breakdown.

Sources: Freddie Mac Primary Mortgage Market Survey, week ending November 12, 2026 (30-year fixed 7.11%, 15-year fixed 6.45%); Consumer Financial Protection Bureau, "Should I refinance my mortgage?" All figures in this guide were produced by running the SumKitTool Refinance Calculator. Last reviewed: 13 November 2026.

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