How do I know if refinancing is worth it?

Divide the closing costs by the monthly saving to get the break-even in months, then ask honestly whether you will still own the home and still have that loan by then. The refinance calculator on this site does the arithmetic and shows the cumulative comparison.

What is the difference between rate-and-term and cash-out?

A rate-and-term refinance changes the rate, the term or both without taking meaningful cash. A cash-out refinance borrows more than the current balance and pays you the difference. They are underwritten differently, priced differently, and usually have different maximum loan-to-value limits.

Will refinancing reset my loan to thirty years?

It will if you choose a thirty-year term, and that is worth thinking about. Lowering the payment by starting the clock again can increase the total interest you pay even at a lower rate. Compare against the remaining term on your current loan, not against its original one.

Is a no-closing-cost refinance real?

The costs are real; what changes is who pays them and when. They are typically added to the balance or recovered through a higher rate. Neither is wrong, but you should know which one you are being offered.

Do I need an appraisal?

Usually, though an appraisal waiver is sometimes available depending on the loan, the property and the lender. The value matters because it sets the loan-to-value, which affects pricing and whether mortgage insurance applies.

Can I refinance to get rid of mortgage insurance?

Sometimes, if your equity position now supports it. On a conventional loan there may also be a route to removing it without refinancing at all, which is worth checking first because it costs nothing. On most modern FHA loans the annual premium runs for the life of the loan, so refinancing out of FHA is the usual route.

Can I refinance if my income has changed?

It is underwritten again, so a change in income is assessed as it would be on a purchase. Self-employed borrowers whose returns understate their cash flow sometimes find a bank statement loan fits where a conventional refinance does not.

Loan option

Refinancing

Refinancing replaces your existing mortgage with a new one. It is a fresh loan with fresh underwriting and fresh closing costs, which is why the question is never just whether the rate is lower.

Last updated 10 November 2026

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How it works

How refinancing works

A refinance pays off the existing mortgage with a new one. The old loan ends; the new one starts, with its own rate, term, costs and start date.

There are two broad kinds. A rate-and-term refinance changes the rate, the term or both, and you take no meaningful cash out. A cash-out refinance borrows more than you owe and pays you the difference, which raises the balance and usually prices differently.

The arithmetic that matters is the break-even: the closing costs divided by the monthly saving gives the number of months before you are ahead. If you expect to sell or refinance again before then, the refinance costs you money even though the rate is lower.

Resetting the term matters as much as the rate. Refinancing a loan you are eight years into back to a fresh thirty years can lower the payment while raising the total interest you pay. Compare the remaining term, not just the monthly figure.

What to weigh up

It is a new loan, so it is underwritten again. Your credit, income, debts and the property's value are all reassessed, and a change in any of them since the original loan can change the answer.
A new appraisal is usually required, and the value that comes back decides the loan-to-value, which in turn affects pricing and whether mortgage insurance is needed.
"No closing cost" refinances are not free. The costs are typically rolled into the balance or paid for through a higher rate. Ask where they went rather than whether they exist.
A cash-out refinance converts equity into debt secured on your home. That can be the right move and it raises what you owe on the place you live.
If the existing loan has a prepayment penalty, that is a direct cost of refinancing and belongs in the break-even.
On a VA loan, refinancing may trigger the funding fee again, and the IRRRL has its own rules. Check which applies before modelling it.

Set by the lender, not by us

These vary between lenders and change over time. Nothing on this page is a quote, an approval, or a commitment to lend.

The rate, points and closing costs offered
The maximum loan-to-value, which differs between rate-and-term and cash-out
Credit score, debt-to-income and reserve requirements
Whether an appraisal waiver is available on your file
Seasoning requirements — how long you must have held the current loan
Whether mortgage insurance can be removed, and on what evidence

Nothing on this page is a rate quote, an approval, or a commitment to lend. Figures and requirements change, and they depend on your file.

Terms used on this page

Refinance: Replacing an existing loan with a new one, whether to change the rate, the term, the loan type, or to draw on equity.A lower rate alone does not make a refinance worthwhile. Weigh the costs against the monthly saving and how long you plan to keep the loan.
Closing costs: The costs of completing the transaction, separate from the price of the home: origination charges, title insurance, recording fees, prepaid taxes and insurance, and more.
Loan-to-value (LTV): The loan amount expressed as a percentage of the property's value. A larger down payment means a lower LTV.
APR (annual percentage rate): A rate expressing the cost of borrowing including certain fees and charges, not just the interest rate. It exists so two offers can be compared on a more consistent basis.APR and interest rate are different numbers, and which costs you less depends on how long you keep the loan. Neither is quoted on this site.
Cash to close: The total funds you need at closing: down payment, closing costs, prepaid items such as taxes and insurance, and any escrow set-up.It is usually larger than the down payment alone, and it is the figure worth planning around.

See the full mortgage glossary

Questions about this program

How do I know if refinancing is worth it?: Divide the closing costs by the monthly saving to get the break-even in months, then ask honestly whether you will still own the home and still have that loan by then. The refinance calculator on this site does the arithmetic and shows the cumulative comparison.
What is the difference between rate-and-term and cash-out?: A rate-and-term refinance changes the rate, the term or both without taking meaningful cash. A cash-out refinance borrows more than the current balance and pays you the difference. They are underwritten differently, priced differently, and usually have different maximum loan-to-value limits.
Will refinancing reset my loan to thirty years?: It will if you choose a thirty-year term, and that is worth thinking about. Lowering the payment by starting the clock again can increase the total interest you pay even at a lower rate. Compare against the remaining term on your current loan, not against its original one.
Is a no-closing-cost refinance real?: The costs are real; what changes is who pays them and when. They are typically added to the balance or recovered through a higher rate. Neither is wrong, but you should know which one you are being offered.
Do I need an appraisal?: Usually, though an appraisal waiver is sometimes available depending on the loan, the property and the lender. The value matters because it sets the loan-to-value, which affects pricing and whether mortgage insurance applies.
Can I refinance to get rid of mortgage insurance?: Sometimes, if your equity position now supports it. On a conventional loan there may also be a route to removing it without refinancing at all, which is worth checking first because it costs nothing. On most modern FHA loans the annual premium runs for the life of the loan, so refinancing out of FHA is the usual route.
Can I refinance if my income has changed?: It is underwritten again, so a change in income is assessed as it would be on a purchase. Self-employed borrowers whose returns understate their cash flow sometimes find a bank statement loan fits where a conventional refinance does not.

Official sources

Program rules are set by these organizations and are updated periodically. Where this page and an official source disagree, the official source is correct.

What is refinancing? (opens in a new tab) — Consumer Financial Protection Bureau
Understanding the Closing Disclosure (opens in a new tab) — Consumer Financial Protection Bureau
Find a HUD-approved housing counselor (opens in a new tab) — Consumer Financial Protection Bureau

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