Question 1

When does it make sense to refinance your mortgage?

Accepted Answer

Refinancing typically makes sense when you can lower your interest rate by at least 0.5% to 0.75%, plan to stay in the home long enough to recoup closing costs (the break-even point), or need to switch from an adjustable-rate to a fixed-rate mortgage. Cash-out refinancing can also make sense to consolidate high-interest debt or fund major improvements.

Question 2

How much does it cost to refinance a mortgage?

Accepted Answer

Refinance closing costs typically range from 2% to 5% of the loan amount, or roughly $3,000 to $6,000 on a $200,000 loan. Costs include appraisal fees, title insurance, origination fees, and recording fees. Some lenders offer no-closing-cost refinances in exchange for a slightly higher interest rate.

Question 3

What is a refinance break-even point?

Accepted Answer

The break-even point is the number of months it takes for your monthly savings from refinancing to equal the closing costs you paid. For example, if refinancing saves you $200/month and costs $4,000, your break-even point is 20 months. If you plan to stay in the home longer than the break-even period, refinancing is likely worth it.

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