When Should You Refinance Your Mortgage?

The Break-Even Rule

The most important refinance calculation is your break-even point — how many months it takes for your monthly savings to recoup the closing costs of refinancing.

Formula: Closing Costs ÷ Monthly Savings = Break-Even Point (months)

If you plan to stay in the home longer than the break-even point, refinancing likely makes financial sense. If you plan to move before break-even, it may not be worth the upfront costs.

Traditional Rate Threshold: 0.5%–1%

A common rule of thumb is to refinance when you can reduce your rate by at least 0.5% to 1%. However, this depends on your loan balance — a 0.5% reduction on a $500,000 loan saves much more than on a $150,000 loan.

Types of Refinance

• Rate-and-Term: Lower your interest rate and/or change your loan term (e.g., 30-year to 15-year). No cash out.
• Cash-Out: Refinance for more than you owe and receive the difference in cash. Common uses: debt consolidation, home improvements, investments.
• VA IRRRL: Streamlined refinance for existing VA loans — minimal documentation, often no appraisal.
• FHA Streamline: Simplified refinance for existing FHA loans with reduced documentation.

5 Signs It's Time to Refinance

1. Rates have dropped significantly since you got your loan
2. Your credit score has improved — a higher score qualifies you for better rates
3. You want to eliminate PMI — if your home has appreciated to 20%+ equity
4. You want to shorten your term — switch from 30-year to 15-year to save interest
5. You need cash for debt consolidation, renovations, or investments

When NOT to Refinance

• If you plan to sell within 1-2 years (won't hit break-even)
• If you're far into your loan term (most of your payment is already going to principal)
• If your credit has dropped significantly since your original loan
• If closing costs exceed your potential savings

No-Cost Refinance Options

Some refinances can be structured with no out-of-pocket closing costs by incorporating the costs into a slightly higher rate. This eliminates the break-even calculation — you save from day one, just at a slightly lower rate reduction.

Airus Lending can model both scenarios for you and help you decide which approach saves more over your planned time in the home.