When refinancing can make sense

A rate-and-term refinance pays off the old mortgage and starts a new one, usually to change the interest rate, the term, or both. You do not take additional cash out, beyond small rounding or costs rolled into the balance.

A cash-out refinance pays off the old loan and gives you a check for part of the equity. The new balance is higher. That is a different decision from simply trying to lower the payment.

Refinancing costs money. Divide the closing costs you would pay in cash by the monthly principal-and-interest savings. The result is a rough number of months before the savings cover the costs. If you sell or refinance again before then, the lower rate may not pay for itself.

Rolling costs into the loan avoids writing a check and increases the balance you pay interest on. A longer term can cut the payment even when the rate barely moves, because you are stretching the same debt over more years. You may pay more interest over the full term.

A small rate drop plus high fees, a plan to move soon, or a new loan that resets a nearly finished term can leave you worse off. Prepayment penalties on the current loan, if any, belong in the math too.

The lender will underwrite the refinance as a new loan. Credit, income, and the current value of the home all get reviewed again. Nothing on this page is a recommendation to refinance.