When should you refinance your mortgage?

The main reasons to refinance

• Lower your rate or payment (a rate-and-term refinance).
• Shorten your term (for example, 30 years to 15) to pay off sooner and save interest.
• Drop mortgage insurance once you have enough equity on a conventional loan.
• Get out of an adjustable-rate loan into a fixed rate for predictability.
• Tap equity with a cash-out refinance for improvements, debt consolidation, or other goals.

The break-even rule

Here is the simplest way to judge a rate-and-term refinance: divide the closing costs by your monthly savings. That is roughly how many months it takes to break even. If you will keep the home longer than that, refinancing generally makes sense.

Example: $4,000 in costs and $200 a month saved is a 20-month break-even. Plan to stay past 20 months? It likely pays off. Want to run your own numbers? Try the refinance break-even calculator.

Rate-and-term vs. cash-out

	Rate-and-term	Cash-out
Goal	Lower rate, term, or payment	Access home equity as cash
New loan balance	About the same	Larger (you borrow more)
Common uses	Save money, shorten term, drop PMI	Renovations, debt payoff, big expenses

When NOT to refinance

Refinancing isn't always the move. Think twice if you plan to sell or move soon (you may not reach break-even), if it would restart your loan clock and cost more interest overall, or if the savings are too small to justify the costs. Mindy will be honest with you if the math doesn't work; sometimes the best advice is to wait.

Mindy Hay is a senior loan officer with Union Home Mortgage, based in Tigard and serving the greater Portland metro, Southwest Washington, and Arizona. See the full refinance page for options.

Frequently asked questions