Should I Refinance My Mortgage?

Answer 5 quick questions to get a straight yes/no recommendation — with the exact math behind it. No sign-up. No sales calls. Just the numbers.

Common Scenarios: Refinance or Stay Put?

Before running your exact numbers, here's how the math typically plays out across real homeowner situations.

The 5 Questions That Actually Matter

Most homeowners focus on just the interest rate. The rate is actually only one of five factors that determine whether refinancing helps or hurts you financially.

1. What is your rate gap?

The difference between your current rate and your new rate drives your monthly savings. A 1% drop on a $400,000 loan saves about $240/month. A 0.25% drop on a $120,000 loan saves only $18/month. The math must work for your specific balance — not for a neighbor with a different loan size.

2. What are your total closing costs?

Refinancing costs money upfront: origination fees, appraisal, title insurance, recording fees, and prepaid interest typically total 2–5% of the loan amount. On a $300,000 loan that's $6,000–$15,000. This is the hurdle your monthly savings must clear. Get a formal Loan Estimate from at least three lenders before assuming a cost figure.

3. What is your break-even point?

Divide total closing costs by monthly savings. That's your break-even in months. If your closing costs are $8,000 and you save $200/month, break-even is 40 months (3 years, 4 months). Before that date, you're underwater on the refinance.

4. How long will you stay in the home?

This is the variable most homeowners underestimate. If you're likely to sell, move for work, upsize for a growing family, or downsize within your break-even window, refinancing costs you money on net — even at an attractive rate. Be honest with yourself about your actual timeline, not your hoped-for timeline.

5. Are there secondary benefits?

Sometimes refinancing makes sense even with a modest rate drop because of secondary gains: eliminating PMI when home value has risen, switching from an ARM to a fixed rate before a reset, or shortening your term and eliminating years of payments. These benefits layer on top of the rate savings and can tip a borderline case into a clear yes.

The 1% Rule Is Outdated — Here's Why

For decades, financial advisors repeated the rule that you should only refinance if rates drop by at least 1%. This guideline made sense when loan balances were lower and closing costs were a higher percentage of savings. Today it's obsolete.

On a $600,000 loan, a 0.375% rate drop saves $140/month. At $9,000 in closing costs, break-even is 64 months — worth it if you plan to stay 7+ years. The 1% rule would tell you not to bother. It would be wrong.

Conversely, on a $100,000 loan with only 8 years remaining, a 1.5% drop saves $72/month on interest but you've already paid most of the interest on this loan. Resetting to a new term likely costs more than it saves. The 1% rule would say go for it. It would be wrong again.

The break-even calculation replaces the 1% rule. Run your actual numbers — not rules of thumb.

When You Should Wait to Refinance

Sometimes the answer to "should I refinance?" is "not yet." These situations call for waiting:

• Your credit score recently dropped — if it's below 720 and you can improve it in 3–6 months, waiting for a better score often yields a better rate than the rate environment alone
• You just made a major purchase — a car loan, new credit cards, or business financing raises your debt-to-income ratio and can disqualify you from the best rates
• You're self-employed with a bad tax year — lenders use your two most recent tax returns. A low-income year can hurt your DTI even if your business is recovering
• Rates are falling — if credible forecasts suggest rates could drop another 0.5% in the next 6 months and your break-even is already marginal, waiting may be worth it
• You just refinanced recently — refinancing again too soon means paying closing costs twice without enough time to recoup either set

Frequently Asked Questions

Should I refinance if I only have 10 years left on my mortgage?

Usually not. In the early years of a mortgage you pay mostly interest; in the later years you pay mostly principal. Refinancing to a new 30-year term restarts the interest-heavy schedule and you'll pay far more total interest — even at a lower rate. If you want a lower payment with few years left, a shorter term (10-year refi) might make sense. Run the total interest comparison carefully.

Does refinancing hurt my credit score?

Yes, temporarily. A mortgage application triggers a hard inquiry, typically dropping your score 5–10 points. Shopping multiple lenders within a 45-day window counts as a single inquiry under FICO's mortgage rate-shopping rules. Your score typically recovers within 6–12 months. Don't let a small temporary dip stop you from shopping around.

Can I refinance with a low credit score?

Options exist even with scores in the 580–640 range. FHA Streamline (for existing FHA borrowers) and VA IRRRL (for veterans with VA loans) allow refinancing without a new credit check in many cases. Conventional refinances require a minimum 620 score, but rates are significantly better at 740+. If your score is borderline, spending 6 months improving it first often saves more than locking in at a suboptimal rate now.

What documents do I need to refinance?

Standard requirements: two years of W-2s or tax returns, two months of pay stubs, two months of bank statements, your current mortgage statement, and proof of homeowners insurance. Self-employed borrowers additionally need business returns and a profit/loss statement. Having these ready before applying speeds up the process significantly.