Start with the breakeven
The single most important number is your breakeven point: how many months it takes for your monthly savings to cover the cost of the refinance. The math is simple — total closing costs divided by monthly savings equals breakeven in months.
- Closing costs on a refi typically run 2–4% of the loan
- Plan to stay in the home longer than the breakeven? Refi likely wins
- Selling or refinancing again sooner? Probably not worth it
Rate-and-term vs cash-out
A rate-and-term refi changes the rate, the term, or both — your loan balance stays roughly the same. A cash-out refi increases your balance and gives you the difference at closing. Both can make sense, but they solve different problems.
When refinancing makes sense in 2026
- Your current rate is at least 0.5–0.75% above today's market
- You want to drop mortgage insurance after building equity
- You're switching from an ARM to a fixed rate
- You need to pull equity for renovations or debt consolidation at a lower blended rate
Gotchas people miss
Refinancing resets your amortization clock — going from a 30-year you've paid for 7 years into a new 30-year means you pay more interest over the life of the loan, even at a lower rate. Ask your broker to model a 20- or 25-year term to keep the payoff date close to where it was.
Streamline options
If you already have an FHA or VA loan, you may qualify for a streamline refinance — less paperwork, no new appraisal in many cases, and faster closing. Worth asking about before you go through a full re-underwrite.