Refinancing makes sense when you can lower your rate by at least 0.5%–1%, your break-even point is shorter than how long you plan to stay, and you have a credit score of 620 or higher. If all three are true, refinancing will likely save you money.
Millions of homeowners ask this question every year — especially when interest rates shift. The answer depends on four factors: your current rate, the new rate available to you, your closing costs, and how long you plan to stay in the home.
This guide walks you through each factor clearly so you can make a confident decision.
The break-even rule — the most important calculation
Before anything else, calculate your break-even point. This is the number of months it takes for your monthly savings to equal the upfront cost of refinancing.
The formula is simple: closing costs ÷ monthly savings = break-even months.
If you plan to stay in your home longer than your break-even point, refinancing saves you money. If you might move before then, it probably doesn't.
Example: break-even calculation
Calculate your personal break-even
Enter your current loan details and the new rate you've been quoted to see your exact monthly savings and break-even point.
When refinancing makes sense
Refinancing is generally worth considering when several of the following are true:
Signs refinancing is right for you
When refinancing doesn't make sense
- Rate drops 1%+ on a large balance
- Planning to stay 5+ years
- Credit score improved significantly
- Want to eliminate PMI
- Switching ARM to fixed rate
- Planning to move within 2 years
- Rate drop is less than 0.5%
- Credit score has dropped
- Nearly done paying off loan
- Closing costs exceed savings
How much does refinancing cost?
Closing costs for a refinance typically run 2% to 5% of your loan balance. On a $300,000 loan, that's $6,000 to $15,000. These costs include:
- Loan origination fee (0.5%–1% of loan amount)
- Appraisal fee ($300–$600)
- Title search and insurance ($700–$1,500)
- Credit check fee ($25–$50)
- Recording fees ($25–$250)
Some lenders offer no-closing-cost refinances where the fees are rolled into your loan balance or covered by accepting a slightly higher interest rate. These can make sense if you don't have cash upfront or plan to move within a few years.
What credit score do you need?
Most conventional lenders require a minimum score of 620 to refinance. To get the best available rates, you generally need 740 or higher. The difference between a 680 and a 740 score can be 0.25%–0.5% on your rate — which adds up to thousands of dollars over the life of the loan.
If your score is below 620, consider waiting 6–12 months to improve it before applying. Even small improvements can meaningfully change the rates available to you.
How long does refinancing take?
A standard refinance takes 30 to 45 days from application to closing. The process includes a new application, credit check, appraisal, underwriting, and closing. Some lenders offer streamlined refinances that can close faster.
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Compare Refinance Rates →Common questions
When should I refinance my mortgage?
Refinancing makes sense when you can lower your rate by at least 0.5%–1%, your break-even point is shorter than how long you plan to stay, and your credit score qualifies you for a good rate.
What is the break-even point in refinancing?
The break-even point is how many months it takes for your monthly savings to equal your closing costs. Divide your closing costs by your monthly savings to find it. If you plan to stay longer than that, refinancing saves you money.
How much lower does my rate need to be to refinance?
A common rule is that refinancing is worth it when you can lower your rate by at least 0.5%–1%. The right threshold depends on your loan balance, closing costs, and how long you plan to stay.
What credit score do I need to refinance?
Most lenders require a minimum of 620 for a conventional refinance. To get the best rates, aim for 740 or higher.
How much does refinancing cost?
Refinancing typically costs 2%–5% of your loan amount in closing costs. On a $300,000 loan, that is $6,000–$15,000. Some lenders offer no-closing-cost refinances where fees are rolled into the loan.