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Refinancing

Replace your mortgage with a better one — when the numbers work.

By Fountain Finances Editorial TeamUpdated

Reasons to refinance

  • Lower your interest rate and monthly payment.
  • Shorten your term, such as moving from 30 to 15 years, to pay less interest overall.
  • Switch from an adjustable rate to a fixed rate for predictability.
  • Remove mortgage insurance once you have enough equity.
  • Take cash out for major expenses (a cash-out refinance).

The break-even calculation

Refinancing has closing costs, often a few percent of the loan amount. Divide those costs by your monthly savings to find the break-even point:

$6,000 in closing costs ÷ $200 monthly savings = 30 months to break even

If you expect to stay in the home well beyond the break-even point, refinancing may make sense. If you might move sooner, it may not.

Watch the total cost

A lower payment is not always a lower cost. Extending your term or rolling closing costs into the loan can increase the total interest you pay. Compare the total remaining cost of your current loan with the total cost of the new one using the mortgage calculator.

Cash-out refinancing vs. home equity loans

A cash-out refinance replaces your entire mortgage with a larger loan. If your current rate is low, a separate home equity loan or HELOC may be cheaper because it leaves your first mortgage untouched.

Frequently asked questions

How much lower does my rate need to be to refinance?

There is no universal threshold. What matters is whether your monthly savings recover the closing costs before you expect to sell or refinance again. Calculate your break-even point.

Does refinancing restart my loan?

Yes — a new loan starts a new amortization schedule. Refinancing a loan you have paid for years into a new 30-year term can lower the payment but increase total interest. Consider a shorter term.

Can I refinance with little equity?

Options are limited with low equity, though some government-backed loans offer streamlined refinancing. Most conventional refinances require meaningful equity, especially to avoid mortgage insurance.

Part of our Mortgage hub and our complete personal finance guide. Read our editorial standards.

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