One, what is the new monthly payment compared to today, and what does that delta do for you? Two, what does the new loan cost to close, and how many months of savings does it take to pay that back? Three, how long do you realistically plan to stay in this home? Four, are there other goals (debt consolidation, removing mortgage insurance, switching out of an adjustable loan) that change the picture?
If the answers line up cleanly, refinancing is usually a good idea. If they conflict, slow down.
"Refinance when rates drop a full point" is a folk rule, not math. On a small loan balance, even a one-point drop may not clear the closing costs in any reasonable timeframe. On a large balance, a quarter-point can be enough to make sense. Always run the actual breakeven number for your situation.
"Resetting the clock is bad" is also overstated. Yes, a fresh 30-year term can increase total lifetime interest. But a lower payment can free up cash flow for higher-priority goals. The right call depends on which goal you care about most.
Mortgage rates move with the bond market, not directly with Federal Reserve announcements. Watching the 10-year Treasury gives you a cleaner read than watching cable news. That said, trying to time the bottom is the same game as timing the stock market. The buyers and owners who win at it usually got lucky on the week they happened to need a loan.
Not sure if a refinance is the right tool? The refinance vs recast guide walks through when each one fits.
There is no universal rate gap that says refinance now. The right answer depends on what you would save each month, what the new loan costs to obtain, how long you will stay in the home, and what else is going on in your finances.
Related glossary terms
Includes a hypothetical 29-month break-even example, 25-year vs. 30-year loan comparison, Loan Estimate field guide and a fillable quote sheet.
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Both let you tap home equity. The right tool depends on what you need the money for, how long you need it, and what your current first mortgage looks like.
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