Should I refinance my mortgage right now?
Refinance only if you can drop your rate by at least 0.75-1%, plan to stay 3+ years, and can break even on closing costs of 2-5% of the loan. With 2024 rates near 6.8%, most homeowners with sub-5% pandemic rates should not refinance. Exceptions include cash-out refinances for high-interest debt, removing PMI after 20% equity, or switching from an ARM to a fixed rate.
In This Guide:
1. Run the Break-Even Calculation
The break-even formula divides closing costs by monthly savings to find how many months you must keep the loan. On a $300,000 refinance, closing costs of $6,000-$9,000 (2-3%) divided by $200 monthly savings equals 30-45 months to break even. If you plan to move in 2 years, the refinance loses money. Subtract any extra interest you will pay by extending the term back to 30 years, since restarting the clock can erase savings even at a lower rate. Compare both the monthly payment and the total interest paid over the years you expect to stay. Ask each lender for a Loan Estimate, the standardized 3-page form that makes apples-to-apples comparison easy.
- Collect Loan Estimates from 3 lenders
- Total your closing costs and any lender credits
- Divide costs by monthly savings for break-even months
- Compare total interest over your expected stay
- Decline if break-even exceeds your time horizon
- Restarting a 30-year term can wipe out savings even at a lower rate.
2. Know When Refinancing Actually Pays
Refinancing pays when you can drop your rate 0.75-1% or more, you have 20% equity to ditch PMI, or you need to consolidate high-interest debt. A cash-out refinance at 6.8% to pay off credit cards at 24% saves thousands even if rates are not lower. Switching from a 7/1 ARM to a 30-year fixed locks in certainty before your rate adjusts. Shortening from 30 to 15 years saves six figures of interest but raises your payment 30-40%. Veterans can refinance with the VA IRRRL streamline, which waives appraisal and income checks; those with 10%+ disability ratings also skip the funding fee. Avoid refinancing if your credit has dropped since origination, since that can push your new rate higher.
- Check if you have 20% equity to drop PMI
- Compare your current rate to today's quotes
- List any credit card debt a cash-out could pay
- Weigh a 15-year versus 30-year term
- Confirm your credit score is at least as strong
- A cash-out refinance to pay 24% APR credit cards can save $10k+.
3. Shop Multiple Lenders and Skip Junk Fees
Mortgage rates vary 0.25-0.5% between lenders on the same day, so collecting 3-5 Loan Estimates can save $100-$200 monthly. Credit unions and online lenders like Better, Rocket, and Pennymac often beat big banks. Watch for junk fees like application, rate-lock, and document preparation that can add $500-$1,500. Ask for a "no-closing-cost" refinance where the lender credits back fees in exchange for a 0.25% higher rate, smart if you might move within 5 years. Avoid paying discount points unless you will keep the loan past 5 years, since each point costs 1% of the loan to drop the rate 0.25%. Verify the loan does not carry a prepayment penalty before signing.
- Request Loan Estimates from 3-5 lenders
- Compare the APR, not just the rate
- Ask each lender to waive junk fees
- Request a no-closing-cost option if moving soon
- Confirm there is no prepayment penalty
- The APR, not the rate, reflects the true cost including fees.
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