​​​​​​​Mortgage Refinancing: When It Makes Sense and When It Doesn't

Bernard Reynolds
Published Apr 2, 2024

Mortgage refinancing is often touted as a way for homeowners to lower their housing costs. However, refinancing only makes financial sense under certain circumstances.

Here's some guidance on when refinancing your mortgage may be a savvy move—and when it's better to stick with your current loan.

Consider Your Long-Term Plans

If you don't plan to stay in your home for at least a few years after refinancing, the closing costs you pay upfront likely won't be recouped in monthly savings. Most experts recommend only refinancing if you intend to keep the property for at least 3 to 5 years.

If selling your home is on the horizon, refinancing probably doesn't make economic sense.

Do the Math Carefully  

Crunch the numbers to determine if refinancing will actually lower your monthly payment enough to offset closing fees within a reasonable timeframe. Online calculators can help estimate your breakeven point.

As a rule of thumb, aim for recouping closing costs within 12 to 18 months to make refinancing worthwhile. If the math doesn't work out in your favor, stick with your current loan.

Consider Your Credit Score

The interest rate you'll qualify for depends heavily on your credit score and credit history. If your score has dropped significantly since obtaining your original mortgage, you may not qualify for a rate low enough to warrant refinancing.

Take time to check your credit report, dispute any errors, and adopt good credit habits to improve your score before applying to refinance.

The bottom line? Mortgage refinancing makes the most sense if you plan to stay in your home long-term, can secure a lower interest rate that offsets fees, and have a stable credit score.

But if any of these factors don't align, refinancing may end up costing more than it saves. Carefully evaluate your own financial situation to determine if refinancing your mortgage is right for you.

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