A refinance replaces an existing mortgage with a new loan. It may change the rate, term, payment structure, or amount borrowed, but it also comes with costs and tradeoffs. Whether it is worth considering depends on your goal and the complete new loan terms.
Start with the reason
People may explore refinancing to change their loan term, review the loan structure, or ask whether they can use home equity. Write down your goal before comparing offers. A proposed loan should be evaluated against that goal—not only against a monthly payment.
Compare the full cost
Review the interest rate, APR, term, monthly payment, closing costs, cash to close, mortgage insurance, and any prepayment or other loan features. A lower payment can result from a longer repayment term or a larger loan balance, which may increase total interest over time.
Ask for a written Loan Estimate and compare it with your current loan information. If an offer is described as “no-cost,” ask whether costs are covered by a higher rate or added to the balance; the CFPB explains that these costs are paid in a different way rather than eliminated.
Estimate a break-even point carefully
A simple break-even estimate divides eligible refinance costs by estimated monthly savings, which gives a number of months. This is only a simplified illustration: actual costs and savings vary, and the calculation may not reflect a longer term, taxes, insurance, escrow, changing rates, or how long you keep the loan.
Do not treat a break-even estimate as proof that a refinance is beneficial. Compare the total loan terms and consider how long you expect to stay in the home or keep the loan.
Questions to ask
- What problem am I trying to solve?
- What are the total costs and how will I pay them?
- Does the new loan restart or extend the repayment timeline?
- How do the APR and total interest compare?
- Will my payment change after an introductory period?
- How long do I expect to keep the property or loan?
- What alternatives should I compare?
Take time to review
Mortgage terms and costs vary by borrower, property, location, and product. Compare several written offers where possible, ask questions, and make sure the new loan supports your goal before moving forward.
To compare a refinance offer line by line, see How to Compare Mortgage Loan Estimates.
These guides are educational and do not determine whether a loan is available or suitable for you. Product terms and eligibility vary.