Refinancing replaces an old mortgage with a new one. A lower rate can help. It can also come with closing costs, a longer clock, a bigger balance, points, and a fresh stack of interest-heavy early payments.
Do the rough break-even first
Add the real costs of getting the new loan. Leave out prepaid taxes and insurance that are simply moved between escrow accounts, but include lender charges, appraisal, title, recording, points, and costs added to the balance.
Then find the monthly savings caused by the new loan. Compare principal and interest on the same balance. Be careful when escrow estimates make one payment look better.
Rough break-even months = true refinance costs ÷ real monthly savings.
If the costs are $4,800 and the real monthly savings are $160, the rough break-even is 30 months. That does not prove the refi is right. It tells you the month when the upfront cost may finally be recovered.
Ask how long you will keep it
Will you move, sell, pay off the loan, or refinance again before break-even? Use a short, likely, and long timeframe. CFPB guidance says comparing a few possible timeframes can help when points or lender credits are in the offer.
Watch the term reset
If you are ten years into a 30-year mortgage and refinance into a new 30-year mortgage, the payment may fall partly because the payoff clock got longer. Ask for a 20-year and 15-year option too, or compare what happens when you keep paying the old amount.
“No closing cost” is not no cost
The CFPB says those loans generally work in one of two ways: the lender charges a higher rate and gives a credit, or the closing costs are added to the loan amount. The cost moved. It did not leave town.
Cash-out is a different decision
Taking cash out raises the mortgage balance and turns other spending into debt secured by the home. Compare the new total loan, not just the cash received or monthly payment. A missed payment on unsecured debt and a missed mortgage payment do not put the same thing at risk.
Get three Loan Estimates again
A refinance is still a mortgage. Ask several lenders for the same balance, term, cash-out amount, and point setup. Put the old loan statement beside the new Loan Estimates.
For many refinances on a main home, a federal three-business-day right to cancel may apply after signing and receiving required disclosures. Purchase mortgages do not have that same general right. Read the notice and ask a lawyer if the timing is in doubt.
Where we checked
Go straight to the source
- CFPB refinance worksheetOfficial questions and worksheets for weighing a refinance.
- CFPB no-closing-cost refinancingExplains higher-rate credits and costs added to the balance.
- CFPB lender credits and pointsTradeoffs over different timeframes.
- CFPB right of rescissionOfficial timing for certain refinance cancellations.
We link to the official office when one exists. A link is not an endorsement, and we do not control outside sites.
