Refinancing your mortgage
A refinance replaces your current loan with a new one. Here is how to tell whether it will actually save you money, and which kind fits your goal.
Check my refinance optionsThe short answer
Refinancing makes sense when the monthly savings or other benefits pay back the closing costs well before you expect to sell or refinance again. Divide your total refinance costs by your monthly savings to get your break-even point in months. If you will stay in the home past that point, and the new loan fits your goals, the refinance is usually worth considering.
What refinancing does
When you refinance, a new lender (or your current one) pays off your existing mortgage and gives you a new loan with a new rate, term, or balance. You go through an application, credit check, and usually an appraisal, similar to when you bought the home, and you pay closing costs again.
Good reasons to refinance
- Lower your rate or payment when market rates are meaningfully below yours.
- Shorten your term, such as a 30-year to a 15-year, to pay far less interest overall.
- Drop mortgage insurance, for example moving from an FHA loan with lifetime premiums to a conventional loan once you have 20% equity.
- Leave an adjustable rate for a fixed rate before the ARM resets higher.
- Take cash out for renovations or to pay off much higher-rate debt.
- Remove a borrower after a divorce or buy out a co-owner.
Types of refinance
| Type | What it does | Typical limits |
|---|---|---|
| Rate-and-term | Changes your rate and/or term; little or no cash back | Conventional up to about 97% LTV in some programs |
| Cash-out | Borrows more than you owe; you receive the difference | Usually 80% of home value (conventional and FHA); VA often up to 90% |
| FHA streamline | Lowers the rate on an existing FHA loan with less paperwork | Current FHA loan, net tangible benefit, 210 days and 6 payments |
| VA IRRRL | Lowers the rate on an existing VA loan with less paperwork | Current VA loan, 210 days and 6 payments, 0.5% funding fee unless exempt |
| Cash-in | You pay down the balance to reach a better LTV tier or drop PMI | Depends on program |
Break-even math
Break-even months = total refinance costs / monthly savings.
Example: you owe $400,000 at 7.50%. Your principal and interest is about $2,797. A new 30-year loan at 6.75% would be about $2,594, saving roughly $203 a month. If the refinance costs $6,000, you break even in about 30 months. If you plan to stay five more years, you come out ahead by roughly $6,200 in payment savings. See the full break-even guide.
One caution: restarting a 30-year term can lower your payment while increasing the total interest you pay. Compare total remaining cost, not just the monthly number.
What it costs
Refinance closing costs commonly run 2% to 5% of the loan amount: origination, appraisal, title insurance, recording fees, and any points you buy. You can pay them in cash, roll them into the loan, or take a slightly higher rate with lender credits. Your Loan Estimate lists every cost, so compare estimates side by side.
When not to refinance
- You plan to sell before you reach break-even.
- Your current rate is already lower than today's rates. In September 2026 the national 30-year average was 7.03%, so many owners with loans from 2020 and 2021 are better off keeping them. If you need cash, a HELOC or home equity loan may cost less overall.
- You would use cash-out money for spending that does not build value, putting your home at risk.
The process
- Decide your goal and gather your current mortgage statement, pay stubs, W-2s or tax returns, and bank statements.
- Get Loan Estimates from two or three lenders and compare APR, points, and total costs.
- Lock your rate, complete underwriting, and schedule the appraisal (streamlines may skip it).
- Review your Closing Disclosure and sign. For a refinance of your primary home, you get a three-business-day right to cancel before funds are released.
Common questions
How much lower does my rate need to be to refinance?
There is no fixed number. The old rule of thumb was 1 percentage point, but the right answer depends on your loan size, closing costs, and how long you will stay. A large loan can justify a refinance for a smaller rate drop. Always run the break-even math.
Does refinancing hurt my credit?
A hard credit inquiry and a new account can lower your score slightly for a short time. Multiple mortgage inquiries within a short shopping window are generally treated as one inquiry by common scoring models.
Can I refinance with no closing costs?
Yes. A no-closing-cost refinance usually means you accept a slightly higher rate in exchange for lender credits that cover the costs, or the costs are added to your loan balance. You still pay, just in a different way.
How soon can I refinance after buying?
Some rate-and-term refinances can happen within months. Cash-out refinances on conventional loans typically require about 12 months of seasoning, and FHA and VA streamlines require at least 210 days and six on-time payments.
Ready to see real numbers?
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