When Should I Refinance My Mortgage? 

Refinancing is one of those financial decisions that sounds simple — swap your old mortgage for a new one, ideally at a better rate — but in reality, it’s all about timing, strategy, and your long-term goals.

In today’s market, with interest rates shifting and home values adjusting in many regions, the refinance question is coming up a lot for homeowners. Some are trying to shed the weight of a higher-interest loan. Others want to tap into equity for home improvements, debt consolidation, or even to expand their real estate portfolio and buy a vacation home (or a new primary).

The truth is, there’s no universal “right” time to refinance. But there is a right time for you — and knowing when that moment hits can mean the difference between thousands saved and thousands wasted.  To understand when that right time might be, you can sign up for our weekly rate alerts and get our lowest rate options sent directly to your phone. 

Just as important is working with the right lender who can help you maximize your savings while keeping your costs to close low. Many refinance lenders will charge discount points to make it seem like you’re getting a low rate, but you could be unnecessarily paying thousands of dollars upfront.

What Does “Refinancing” Actually Mean?

Refinancing your mortgage means replacing your current home loan with a new one. This new loan pays off your existing mortgage and takes its place, often with different terms — a lower interest rate, a new repayment period, or cash taken from your equity.

It’s not just a “paper shuffle.” A refinance comes with closing costs (you want to work with a lender who makes your cash to close as close to $0 as possible but it will likely be around 1-2% of your loan amount), an appraisal, and a full lender review of your finances. Most of the closing costs come from the cost of the appraisal, the title policy, any lender fees and escrows (if necessary). That means it’s worth running the numbers with a lender and weighing the costs before deciding.

Top Reasons to Refinance Your Mortgage

1. Lock in a Lower Interest Rate

I always tell my clients that any time there’s at least a one-point drop in your mortgage rate, it can be worthwhile — especially on larger loan balances. Again, if you want to time the market, sign up for our weekly mortgage rate alerts and get our lowest rate options sent directly to your phone.  You'll know exactly when mortgage rates fall to 1% less than your current rate.

The savings potential can be significant, but it’s important to confirm this by doing a breakeven calculation. This means dividing your total refinance closing costs by your monthly savings to see how many months it will take to recoup what you paid. If you’ll stay in the home longer than that break-even period, the refinance could be a win.

Example:
A $500,000 30-year fixed loan at 6% costs about $2,998 a month (principal and interest). Dropping to 5% would lower that to $2,684 — a savings of $314 per month, or $113,040 in interest over 30 years (before factoring in closing costs).

In some cases, even a smaller rate drop is worth it — for instance, if you plan to stay in the home for a long time or if your new loan comes with better overall terms.

2. Change Your Loan Term

Want to pay your home off sooner? Refinancing from a 30-year to a 15-year mortgage can slash your total interest costs — even if your monthly payment goes up. On the flip side, moving to a longer term can lower your monthly payment and free up cash for other goals.

The key is aligning the loan term with your financial priorities:

• Shorter term = higher monthly payment, much less total interest.

• Longer term = lower monthly payment, more interest paid over time.

That said, I’d never recommend changing to a shorter term unless you’re also lowering your rate by more than 1%. You can accomplish much of the same payoff speed by simply making extra payments toward your principal on your current loan — without the cost of a refinance.

3. Cash-Out Refinance for Debt Consolidation, Investments, or Big Expenses

A  cash-out refinance lets you replace your mortgage with a larger one and keep the difference in cash. Many homeowners use this to:

• Pay off high-interest debt like credit cards (consolidating into one lower-interest payment).

• Fund major home renovations that could increase property value.

• Cover tuition or other large life expenses.

• Buy more real estate — for example, if you bought your home for $350,000 and it’s now worth $600,000, you could refinance, pull out $100,000 in equity, and use it as the down payment on your next property. This is a common strategy for building a rental portfolio while keeping your cash flow strong.

4. Switch Between an ARM and a Fixed-Rate Mortgage

Adjustable-rate mortgages (ARMs)
often start with a low fixed rate for the first 5, 7, or 10 years — but once that period ends, the rate will climb to the then market rate. Refinancing to a fixed-rate mortgage when rates are lower locks in stability and shields you from market volatility.

Conversely, if you currently have a fixed-rate loan and expect to move within a few years, refinancing to an ARM will lower your payments in the short term. In today's market ARMs are pricing about .675% lower than their fixed rate counterparts.

5. Remove Private Mortgage Insurance (PMI)

PMI is an extra cost built into many mortgage payments when a borrower puts down less than 20% at purchase. It protects the lender, not you, and can add hundreds to your monthly payment without helping you build equity faster. If your home’s value has risen and you now have at least 20% equity, refinancing might eliminate PMI — potentially saving you hundreds each month. This is also common when refinancing from an FHA loan (which carries mortgage insurance for much longer) to a Conventional loan once you have enough equity.

How to Know If Refinancing Is Worth It

The easiest way to gauge this is to calculate your break-even point — the time it takes for your monthly savings to offset your refinance closing costs.

Example:
If your new payment saves you $200 a month and your refinance costs $6,000, your break-even point is 30 months (2.5 years). If you plan to stay longer than that, the refinance likely makes sense.

Factors That Impact Your Refi Math:

• How long you’ll stay in the home – Moving soon? You may never hit your break-even point.

• Closing costs – These vary by lender and state. They vary by state because title insurance costs differ significantly depending on where you live. They vary by lender because some will tack on excessive discount points to make their rate look artificially low, while mortgage brokers typically just have lower rates without the hidden markup.

When Not to Refinance

Refinancing isn’t always the right move. You might want to hold off if:

• Rates are higher than your current rate – No point in paying more for a new loan.

• You’re selling soon – You won’t recoup costs.

• You’re almost about to pay off your mortgage – You can customize your new loan term to match your current loan term (for instance, if you have 25 years left on your current mortgage you can obtain a 25 year term for your refinance). However, if you're loan is almost already paid off (like you have 2-5 years remaining), restarting the amortization clock can mean paying more interest overall.

• You’re planning other major credit applications – A refi can cause a temporary credit score dip.

• The savings would fund non-essential spending – Using equity for a vacation or a new car can put your home at unnecessary risk.

How to Prepare for a Successful Refinance

1. Check Your Credit

A credit score of at least 620 is typically required, but you won't like the rate. The best refinance rates go to borrowers with scores above 740.

2. Build Home Equity

Lenders generally want at least 20% equity for the most favorable terms.

3. Lower Your Debt-to-Income Ratio (DTI)

Paying down other debts before applying can make your refinance approval easier — and may qualify you for a better rate.

4. Gather Documentation

Expect to provide tax returns, W-2s or 1099s, pay stubs, and bank statements. Self-employed borrowers may need additional documentation.

The LendFriend Advantage

At LendFriend Mortgage, we don’t just quote rates — we build a strategy. Whether your goal is to lower your payment, pay off your home faster, or access your equity without overpaying in fees, we’ll walk you through your break-even point, shop multiple lenders for the best terms, and close your refinance quickly.

Bottom line: Refinance On your terms

Refinancing can be a smart move if it lowers your costs, aligns with your financial goals, and you’ll be in the home long enough to benefit. But like most major financial decisions, timing and execution matter. Run the numbers, weigh your options, and don’t be afraid to ask a mortgage professional (like us) to break it all down for you.