When Does It Make Sense to Refinance Your Mortgage?

The old rule said you should refinance when rates drop 1% below your current rate. That rule is dated. The right question is simpler: how many months until your monthly savings pay back the closing costs? If the break-even is under 24-36 months and you plan to stay in the home longer than that, a refinance probably makes sense.

Rate-and-term refinance: Lower your rate, shorten your term (30-year to 15-year), or both. Best when rates have dropped or your credit has materially improved since your original loan.

Cash-out refinance: Pull equity to consolidate higher-interest debt, fund home improvements, or invest. The mortgage rate is almost always lower than credit card or HELOC rates — but you're trading short-term debt for 30-year debt, so run the total-interest math, not just the monthly.

VA IRRRL (Interest Rate Reduction Refinance Loan): A streamlined VA-to-VA refinance with no appraisal and minimal documentation in most cases. If you have an existing VA loan and rates have dropped 0.50%+, this is one of the cheapest, fastest refinances available.

FHA Streamline: Same idea for existing FHA borrowers — minimal documentation, no appraisal in most cases, and reduced upfront mortgage insurance.

Want to know if a refinance saves you money in your specific situation? Run the numbers with a local loan officer — there's no fee for the analysis.