Compare your current loan with a new rate to see monthly and total savings.
When Should You Refinance?
Refinancing replaces your current loan with a new one at different terms. It makes sense when you can lower your rate significantly enough to offset closing costs.
The Break-Even Rule
Divide your closing costs by your monthly savings to find your break-even point. If you plan to keep the loan longer than the break-even period, refinancing is worth it.
Break-Even = Closing Costs ÷ Monthly Savings
Total Savings = Old Interest - New Interest - Closing Costs
Frequently Asked Questions
Typical closing costs range from 2-5% of the loan amount. For a mortgage, this might be $3,000-$10,000. For auto loans and personal loans, there are usually no closing costs but there may be origination fees.
On a $200K mortgage, dropping from 7% to 6% saves about $133/month or $48K over 30 years. Even after $5K in closing costs, that is significant. For smaller loans, the savings may not justify the hassle.
Yes, if you refinance into a new 30-year term, your payoff date resets. This is why total interest can sometimes increase even with a lower rate. Consider refinancing into a shorter term if you can afford the higher payments.