If you will stay in the home longer than the break-even point, refinancing generally comes out ahead on a monthly basis. If you might move before then, the closing costs eat the savings.
Watch the term, too: refinancing a loan with 26 years left into a fresh 30-year term lowers the payment but restarts the clock. The lifetime cost comparison above includes that effect, which is why a lower payment does not always mean a cheaper loan.
Refinancing checklist
Aim for at least 0.75 to 1% rate reduction for the refinance to be clearly worthwhile.
Compare lender fees, not just rates: ask for the full loan estimate.
Shorter terms (15 or 20 years) usually carry lower rates and build equity faster.
"No-cost" refinances trade fees for a higher rate; run both versions through this calculator.
When your monthly savings recover the closing costs before you expect to move or sell, the break-even point. Divide total closing costs by the monthly savings. Also compare lifetime costs: extending the term can make a refinance with a lower payment more expensive overall.
How much lower should the rate be to refinance?
A common rule of thumb is at least a 0.75% to 1% rate reduction for the refinance to be clearly worthwhile. Smaller drops can still work if closing costs are low and you plan to stay in the home for many years.
Does refinancing restart the loan clock?
If you refinance into a new 30-year term, yes: the payment drops but you start the amortization schedule over, which can raise lifetime interest. The calculator above compares lifetime costs so you can see that tradeoff clearly.
What are typical refinance closing costs?
Typically 2% to 5% of the loan amount, covering lender fees, appraisal, title insurance and prepaid items. So-called no-cost refinances roll those fees into a higher rate instead.