When Does It Make Sense to Refinance?
Refinancing only makes financial sense if you will stay in the home long enough to recoup the closing costs through lower payments.
The Break-Even Analysis
Formula: Total Closing Costs ÷ Monthly Payment Savings = Months to Break Even
Example: $6,000 in closing costs and $250/month in savings = 24 months to break even.
Rate-and-Term vs. Cash-Out Refinance
- Rate-and-Term Refinance: Replacing your current loan with a new loan at a lower rate or different term. Usually has the lowest closing costs.
- Cash-Out Refinance: Borrowing more than you currently owe and taking cash out. Useful for debt consolidation or home improvements, but typically has higher rates.
When Refinancing Usually Makes Sense
- Interest rates have dropped significantly (generally 1%+ lower than your current rate)
- You want to remove PMI or FHA MIP
- You want to shorten your loan term (e.g., 30-year to 15-year)
- You have high-interest debt you want to consolidate
- You want to access equity for major home improvements
When Refinancing May NOT Make Sense
- Your break-even point is longer than you plan to stay in the home
- You have very little equity
- You recently closed on your current loan
- Your credit has declined since you got your current loan
Florida Note
Many homeowners have seen big increases in insurance and property taxes. Even if your rate hasn't changed much, refinancing can sometimes help recalculate escrow and provide relief.
Want me to run the numbers on your current loan? It's complimentary and there's no obligation.
Aaron Bath — Senior Mortgage Loan Officer | NMLS #2110744 (561) 677-2340 | [email protected] 110 Front Street, Suite 300, Jupiter, FL 33477 www.cfgcloans.com
This guide is for educational purposes only. Equal Housing Lender. NMLS #2547138.
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Written by
Aaron Bath
Licensed Mortgage Loan Originator at Capital Financial Group Corporation (NMLS #2547138), serving homebuyers and investors across Florida, Alabama, Colorado, Ohio, and Tennessee.