Last updated: March 2026 · 2026 average mortgage rates applied
Refinancing your mortgage involves completely replacing your existing loan with a new one. In 2026, many homeowners who bought during the peak rate periods are looking to refinance. However, jumping at a lower rate isn't always financially smart once closing costs are factored in. Our calculator determines exactly when you hit your "Break-Even Point."
When you refinance, you have to pay closing costs all over again (typically 2% to 5% of the loan amount). To determine if refinancing is worth it, you must calculate how many months of savings it takes to recoup those upfront costs.
Example Calculation:
If you plan to sell the house or move in 12 months, refinancing would actually cost you $1,600 net. If you plan to stay in the home for 5 years (60 months), you would save $8,000 net. Always ensure your planned time in the home exceeds the break-even date shown in our calculator.
If you have significant equity in your home (meaning the home is worth much more than you owe), you can do a "cash-out refinance." This involves taking out a new loan that is larger than your current balance and pocketing the difference in cash.
Borrowers frequently use this strategy to fund major home renovations, pay off high-interest credit card debt, or cover college tuition. However, it means your new loan balance will be higher, your payments might increase, and you are restarting the clock on your mortgage. Alternatively, you might want to look into a HELOC (Home Equity Line of Credit) if you only need the cash but want to keep your existing low 1st-mortgage rate intact.
Yes. This is called a "no-out-of-pocket" refinance. The lender simply adds the $4,000 (or whatever the closing costs are) onto your new loan balance. You don't bring cash to closing, but you will pay interest on those closing costs for the next 30 years.
Temporarily, yes. The lender will do a "hard pull" on your credit, which usually drops your score by a few points. It also closes your old mortgage account and opens a new one, which temporarily lowers the average age of your credit accounts. However, the score almost always rebounds completely within a few months of on-time payments.
Generally, you need at least 3% to 5% equity to qualify for a traditional rate-and-term refinance. To avoid PMI on the new loan, you need 20% equity. For a cash-out refinance, lenders typically require you to leave at least 20% equity in the home (i.e., you can only borrow up to 80% of the home's value).
Refinancing typically makes sense when the new interest rate is at least 0.5%–1% lower than your current rate, you plan to stay in the home past the break-even point, and your credit score qualifies you for a better rate. Use our break-even calculator — if you recoup closing costs within 2–3 years, refinancing is generally worth it.
See your break-even point and total lifetime savings from refinancing your mortgage.
Rate reduction: 1.250%
Typically $3,000-$6,000 (1-3% of loan amount)