A lower payment isn’t automatically a better deal. The break-even check tells you whether a refinance will actually pay for itself.
The formula
Total refinance costs ÷ monthly savings = months to break even.
Example: $6,000 in costs and $200 a month in savings is 30 months. If you’ll keep the loan at least two and a half years, you come out ahead. If you might sell or refinance again sooner, it probably isn’t worth it.
Don’t stop at the payment
If you’re five years into a 30-year loan and refinance into a new 30-year loan, your payment may drop partly because you stretched the balance back out. Compare total interest over the time you’ll keep the loan, or choose a shorter term to stay on your original payoff date.
Other good reasons to refinance
- Dropping mortgage insurance, such as moving an FHA loan to conventional once you have about 20% equity.
- Getting out of an adjustable rate before it resets.
- Combining a first mortgage and a HELOC into one fixed payment.
Try the refinance calculator on this site, or send me your current mortgage statement and I’ll run it for you.
Examples are for illustration only. Not a rate quote, a credit decision or a commitment to lend. Programs, terms and timelines vary by lender, property and borrower and are subject to approval. Larz Martin NMLS #2026245, Lumin Lending, Inc. NMLS #2716106. Equal Housing Opportunity.
