You should refinance when the monthly savings pay back the cost of refinancing well before you expect to sell or refinance again, or when a refinance achieves a goal worth its cost: removing mortgage insurance, dropping a co-borrower, consolidating high-interest debt, or pulling cash for something that earns more than it costs. The old "wait for a one-point drop" rule is a rough guide. Break-even math is the real one.
The break-even calculation
- Total cost of the refinance: lender fees, title, appraisal, recording, and any points. Do not count prepaid interest and escrow deposits as costs, since you would pay taxes, insurance and interest anyway, and your old escrow balance is usually refunded.
- Monthly savings on principal and interest.
- Cost divided by monthly savings equals months to break even.
Example: $5,000 in costs and $180 a month in savings is a break-even of about 28 months. If you plan to stay five more years, the refinance clears its cost with room to spare. If you might move in two years, it probably does not.
The trap: restarting the clock
If you are eight years into a 30-year loan and refinance into a new 30-year loan, your payment drops partly because you stretched the payoff back out. You may pay more total interest even at a lower rate. Fixes:
- Refinance into a shorter term, like 20 or 15 years. See 15-Year vs 30-Year Mortgage.
- Or take the new 30-year loan and keep paying your old payment amount, so the extra goes to principal.
Reasons to refinance besides rate
- Remove mortgage insurance. Especially FHA borrowers whose insurance lasts for the life of the loan and who now have enough equity for conventional financing. See What Is PMI and How Do I Get Rid of It? and How Long FHA Mortgage Insurance Lasts.
- Move from an ARM to a fixed rate before an adjustment. See Fixed vs Adjustable.
- Cash out equity for renovations, debt consolidation or investment. See Cash-Out Refinance vs HELOC.
- Remove a borrower after divorce. See Divorce and Your Mortgage in Arizona.
- Shorten the term to own the home sooner.
Streamline options
Some programs allow a reduced-documentation refinance of the same program: the VA IRRRL and the FHA streamline are the best known. They can be faster and cheaper, with their own rules on net benefit and seasoning. See VA IRRRL Streamline Refinance.
A refinance alternative: recast
If you have a lump sum and want a lower payment without changing your rate, a recast may do it for a small fee. See Recast vs Refinance.
When not to refinance
- You will sell before break-even.
- The new loan resets a long term and you will not prepay.
- You are rolling closing costs into the loan and taking a higher balance for a small savings.
- Your credit or income has changed in ways that will cost you in pricing.
Run your numbers on our Cash-Out Refinance Calculator, or send me your current statement and I will tell you whether today's pricing actually helps.
Why ask me
- I answer the question before I sell you anything. If renting, waiting or a different program is the better move, I will say so.
- Real numbers, not a calculator guess. I price your actual scenario, side by side, with the fees on the page.
- Every program under one roof. Conventional, FHA, VA, jumbo, and non-QM options like bank statement, DSCR and asset-based loans, so the program fits you instead of the other way around.
- You talk to the principal. Ricky Khamis is President of EPiQ Lending, NMLS #173141, lending in Arizona since 1999 and a 2025 Presidents Club Winner at CMG Home Loans. Direct line: (480) 999-9842.
EPiQ Lending is NMLS #1936984, at 7975 N. Hayden Road, Suite A-101 in Scottsdale. Verify all of it before you trust any of it: Ricky's EPiQ Lending profile, the Scottsdale branch, and the license itself at NMLS Consumer Access. Hold every lender to that standard, including us.
More plain-English answers in the Mortgage Education library.
Equal Housing Opportunity. This is general information, not a commitment to lend or an offer to extend credit. Program guidelines, eligibility requirements and documentation standards vary by investor and change over time. Rates, terms and program guidelines change and depend on credit approval, property appraisal and other qualifying factors. Not all applicants will qualify. This is not legal or tax advice; consult a qualified professional about your own situation.
Find out what your blended rate actually is
A refinance is shopped against the mortgage rate and decided by the blended rate across everything you owe. Tell me what is on the house and what you want gone, and I will run both.
Looking at a specific home? Send me the address and I will run the numbers: rickykhamis.com/analyze
