When does refinancing make sense?
A refinance is a new mortgage that replaces your existing one. It only makes sense when the savings outweigh the closing costs — so the math matters. A few common signs it's worth a look:
- Rates are at least ~0.5–0.75% lower than your current rate (the classic rule of thumb).
- You're paying PMI on a conventional loan and have reached 20% equity — refi to drop it.
- You're in an FHA loan with MIP for life and have built equity — refi to conventional.
- You want to shorten your term (e.g., 30-year to 15-year) and accelerate payoff.
- You need to tap equity for renovations or to consolidate higher-rate debt.
- You want to switch from an ARM to a fixed rate for stability.
Types of refinance
Rate-and-Term
Replace your current loan with a new one at a lower rate or different term. No cash out.
RequirementsCash-Out
Borrow more than you owe and take the difference as cash for renovations or debt payoff.
Read the guideStreamline (FHA / VA)
FHA Streamline & VA IRRRL skip the appraisal and most paperwork — for existing FHA/VA loans.
Get a quoteRefinance requirements
620+ credit (usually)
Conventional refis want ~620+; FHA/VA streamlines are more flexible.
Sufficient home equity
Rate-and-term often needs ~5%+ equity; cash-out caps at ~80% LTV.
Manageable DTI
Typically up to ~43–50% depending on the loan type and credit.
Loan seasoning
Some refis require you've held the loan for 6–12 months before refinancing.
The break-even math
Will the savings cover the closing costs?
Refinancing isn't free — expect 2–5% of the loan in closing costs. Divide those costs by your monthly savings to find your break-even point. If you'll stay in the home longer than that, the refi makes sense.
Example: $4,000 in closing costs ÷ $200/month savings = 20 months to break even. Plan to stay 5+ years? Easy yes.
Refinance vs. HELOC for tapping equity
If you mainly want cash from your equity, a refinance isn't your only option:
| Cash-Out Refi | HELOC | |
|---|---|---|
| How it works | New larger first mortgage | Second-lien revolving line |
| Rate | Fixed or ARM | Usually variable |
| Best when | Lump sum + lower 1st-mortgage rate | You need ongoing access |
| Closing costs | Higher (full refi) | Lower |
Want the lump sum? See cash-out refinance. Want flexibility? A HELOC may be better.
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Refinance FAQ
Typically 2–5% of the loan amount in closing costs — appraisal, title, origination, escrow setup, and recording fees. Some lenders offer "no-cost" refis by adjusting your rate slightly higher.
Most refinances close in 30–45 days. FHA Streamline and VA IRRRL refis can be faster because they skip the appraisal and most income verification.
Only if you choose a new 30-year term. You can refi into a 20- or 15-year term to pay off faster — often with a lower rate, too.
FHA Streamline and VA IRRRL refis are credit-flexible since they're for existing FHA/VA loans. Conventional refis typically want 620+.
Should you refinance your mortgage?
Watch this guide to understand when refinancing makes sense and how it works.