Before you refinance your mortgage, calculate the breakeven point — the number of months until your monthly savings exceed the refinancing costs. If you’ll move before breaking even, refinancing loses money.
7-Point Refinance Checklist
| # | Check This | Why It Matters |
|---|---|---|
| 1 | Calculate the breakeven point | Closing costs ÷ monthly savings = months to break even |
| 2 | Compare total interest paid (old vs. new loan) | A longer term may cost more overall even with a lower rate |
| 3 | Get quotes from 3+ lenders in the same week | Multiple hard pulls in 14-45 days count as one |
| 4 | Check your credit score and home value | Both affect the rate you’ll get |
| 5 | Review closing cost details line by line | Negotiate or compare — fees vary significantly |
| 6 | Determine if you’re resetting the clock | Refinancing year 10 into a new 30-year loan adds 10 years |
| 7 | Consider the opportunity cost | Could the closing costs earn more invested elsewhere? |
Breakeven Calculation Examples
| Scenario | Closing Costs | Monthly Savings | Breakeven Point |
|---|---|---|---|
| $300K loan, rate drops 1% | $8,000 | $180 | 44 months |
| $300K loan, rate drops 0.75% | $8,000 | $135 | 59 months |
| $300K loan, rate drops 0.5% | $8,000 | $90 | 89 months |
| $500K loan, rate drops 1% | $12,000 | $300 | 40 months |
| No-closing-cost refi (higher rate) | $0 | $100 | 0 months (but less savings) |
If you’ll move before the breakeven point, refinancing costs you money.
When Refinancing Makes Sense
| Situation | Why It Works |
|---|---|
| Rate is 1%+ lower than your current rate | Significant savings even after costs |
| Switching from ARM to fixed rate | Locks in predictable payments |
| Removing PMI (reached 80% LTV) | Saves $100-$300/month |
| Shortening from 30-year to 15-year | Builds equity faster, less total interest |
| Cash-out for high-value investment (not spending) | Debt consolidation at lower rate |
| Plan to stay 5+ more years | Plenty of time to recoup closing costs |
When Refinancing Doesn’t Make Sense
| Situation | Why It Fails |
|---|---|
| Moving within 3 years | Won’t recoup closing costs |
| Rate reduction less than 0.5% | Savings too small to justify costs |
| Extending term to lower payment | Resets the clock — more total interest |
| Cash-out for discretionary spending | Using home equity for vacations or toys = risk |
| Credit score dropped since original loan | May get a worse rate |
| Already 15+ years into a 30-year mortgage | Most of your payment is already going to principal |
Total Cost Comparison
| Scenario | Current Loan | Refi (Same Term Remaining) | Refi (New 30-Year) |
|---|---|---|---|
| Remaining balance | $280,000 | $280,000 | $280,000 |
| Years remaining | 22 | 22 | 30 |
| Interest rate | 7.0% | 6.0% | 6.0% |
| Monthly payment | $2,080 | $1,920 | $1,678 |
| Total interest remaining | $229,120 | $186,880 | $324,080 |
| Closing costs | — | $8,500 | $8,500 |
| Net savings | — | $33,740 | -$103,460 ❌ |
Refinancing into the same remaining term saves $33K. Extending to a new 30-year costs $103K more — even at a lower rate.
Refinance Costs Breakdown
| Cost | Typical Amount | Negotiable? |
|---|---|---|
| Origination fee | 0.5-1% of loan | Yes |
| Appraisal | $300-$600 | No |
| Title search and insurance | $500-$1,500 | Compare providers |
| Credit report | $25-$50 | No |
| Recording fees | $50-$250 | No |
| Attorney fees | $500-$1,000 | Compare providers |
| Prepaid items (taxes, insurance) | Varies | No |
| Total | 2-5% of loan |
The Bottom Line
Refinancing saves money when the rate drop is significant enough to offset closing costs within 2-4 years. Always compare the total interest paid over the life of the new loan, not just the monthly payment. The biggest refinancing trap is extending the term — a lower payment feels good, but you’ll pay tens of thousands more in interest over the longer term.