Refinance strategy
A Refinance Should Solve a Financial Problem
A lower rate can matter, but it isn't the only number. Closing costs, monthly savings, loan balance, cash flow, equity and how long you expect to keep the loan all affect whether refinancing makes financial sense.
Start with the objective. Then evaluate the numbers.
Start with the objective
What are you trying to change?
Reduce the monthly payment
A different rate, loan balance or term may change the required monthly principal and interest payment.
Change the loan term
Moving between loan terms can change both the monthly payment and the speed at which principal is repaid.
Access home equity
Cash-out refinancing may allow eligible homeowners to convert a portion of available home equity into cash, subject to applicable guidelines.
Consolidate higher-cost debt
Some homeowners evaluate using home equity to restructure other obligations. The potential monthly cash-flow benefit should be considered alongside loan costs, term and the fact that unsecured debt may become secured by the home.
Remove or change mortgage insurance
Depending on the existing loan, equity position and available financing, mortgage insurance may be one factor in evaluating a refinance.
Change loan structure
Borrowers may evaluate moving between adjustable and fixed structures or otherwise changing how their mortgage is structured.
Do the math
How long does it take to recover the cost of refinancing?
A refinance can reduce a monthly payment and still take time to recover the costs of completing the new loan.
Estimated refinance cost
÷Estimated monthly savings
=Simple break-even period
Simple break-even is one useful comparison, but it does not capture every financial consideration, including changes in loan term, principal balance, taxes, insurance, opportunity cost or the time value of money.
Calculate Your Break-EvenLook beyond the rate
A lower rate isn't free.
Lower rate / higher cost
Potentially lower monthly principal and interest, but potentially more upfront cost or financed cost.
Higher rate / lower cost
Potentially less upfront cost, but potentially a higher monthly payment.
The right comparison depends partly on how long you expect to keep the financing.
Using home equity
Equity can create options—but the new mortgage still has to make sense.
- Home improvements
- Debt restructuring
- Investment or property-related objectives
- Liquidity needs
- Other financial objectives
Accessing equity increases or restructures debt secured by the home and should be evaluated in the context of the borrower's complete financial situation.
What to compare
Compare the old loan and the new loan—not just the rates.
Current financing
- Current principal balance
- Current rate
- Remaining term
- Current principal & interest
- Mortgage insurance, if applicable
Proposed financing
- New loan amount
- Illustrative rate
- New term
- Estimated principal & interest
- Estimated refinance costs
Monthly difference
Break-even period
New loan term
New loan balance
Refinance FAQ
Common refinance questions.
Run the numbers
Know what the refinance actually changes.
Compare the payment, cost, break-even period and loan structure before deciding whether refinancing fits your objectives.