When refinancing pays off
Refinancing replaces your mortgage with a new one, usually at a lower rate. It costs money up front, typically 2–5% of the loan in closing costs. The key number is the break-even point: closing costs divided by the monthly savings. If you'll stay in the home longer than that, the refinance usually pays off.
In the example, dropping from 7.25% to 6% on a $265,000 balance saves about $277 a month. With $6,000 in closing costs, break-even comes after about 22 months.
Watch the term
Resetting to a new 30-year loan lowers the payment partly by stretching the payoff. That can mean paying more in total even at a lower rate. The calculator compares total remaining payments for both loans, so you can see whether you come out ahead over the life of the loan, not just month to month. Choosing a term close to your remaining years avoids this.
Rolling costs into the loan
Adding closing costs to the balance means no cash up front, but you pay interest on them for years. Tick the box to compare.