When to Refinance
Loan Process
When to Refinance
Refinancing replaces your existing mortgage with a new one — ideally with better terms. But refinancing isn't always the right move. Here's how to evaluate it.
The Break-Even Analysis
The most important refinance calculation: divide your total closing costs by your monthly savings. If closing costs are $5,000 and you save $200/month, your break-even is 25 months. If you plan to stay in the home longer than 25 months, refinancing makes financial sense. If you're moving sooner, it probably doesn't.
Rate-and-Term Refinance
A rate-and-term refinance changes your interest rate, loan term, or both — without taking cash out. Good reasons to refinance: your rate is 0.5–1%+ higher than current rates, you want to switch from an ARM to a fixed rate, you want to shorten your term (30-year to 15-year), or you want to remove PMI (if you've reached 20% equity).
Cash-Out Refinance
A cash-out refinance replaces your mortgage with a larger loan and gives you the difference in cash. You can use the funds for home improvements, debt consolidation, education, or other purposes. Your home equity serves as collateral. Typically you can cash out up to 80% of your home's value (higher for VA loans).
Current Market Considerations
In a rising rate environment, refinancing to a lower rate may not be possible. However, you may still benefit from a cash-out refinance to consolidate high-interest debt, or a term change to pay off your mortgage faster. In a falling rate environment, watch for opportunities to lock in a lower rate. Call Dan to evaluate your specific situation.
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