When does refinancing a mortgage make sense in the US?
Refinancing typically makes sense when the new rate is at least 0.5-1% lower and you will stay in the home past the break-even point. The classic rule is that if you can recover your closing costs from monthly savings within 2-3 years and plan to keep the loan longer, refinancing pays off.
How do I calculate my refinance break-even point?
Divide your total refinance closing costs by your monthly payment savings. For example, $6,000 in costs and $200 per month saved gives a 30-month break-even. If you will keep the mortgage longer than the break-even period, the refinance saves you money overall.
What are typical refinance closing costs?
US refinance closing costs usually run 2-5% of the loan amount and include origination or lender fees, appraisal, title search and title insurance, recording fees, and prepaid items. Some lenders offer 'no-closing-cost' refinances that roll the fees into the balance or the rate, which raises the long-term cost.
Should I refinance to a shorter term?
Refinancing from a 30-year to a 15-year term usually raises the monthly payment but sharply cuts total interest and builds equity faster, often at a lower rate. It makes sense if you can comfortably afford the higher payment. This calculator compares payments at whatever amortization you enter.