Should I Refinance My Mortgage?
Updated June 2026 · 7 min read · Free calculator inside
Refinancing swaps your current mortgage for a new one, usually to get a lower rate or change the term. Because it costs money to do, the decision comes down to one question: will the savings outweigh the closing costs before you sell or move? Here is how to decide.
See your savings and break-even point
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Open the Mortgage Refinance Calculator →The break-even rule
Refinancing has closing costs of roughly 2–5% of the loan. Divide those costs by your monthly saving to get the break-even point — the number of months until you come out ahead. If closing costs are $4,000 and you save $400 a month, you break even in 10 months. If you plan to keep the home past that, refinancing makes sense.
How big a rate drop do you need?
A common rule of thumb is at least a 0.5–1% lower rate, but the real test is the break-even, not the rate gap. A smaller drop can still be worth it on a large balance, while a big drop may not pay off if you move soon or the costs are high.
Shortening your term
Refinancing from a 30-year to a 15-year loan usually raises the monthly payment but slashes total interest, because you pay for far fewer years and often at a lower rate. If you can afford the higher payment, it is one of the most powerful ways to save.
Watch the term-reset trap
- Refinancing a 30-year loan you are 7 years into back to a fresh 30 years restarts the clock.
- Even at a lower rate, stretching the term can increase the total interest you pay.
- Compare the lifetime interest of both loans (including closing costs), not just the monthly payment.
Cash-out refinancing
A cash-out refinance lets you borrow against your home equity by taking a larger new loan and pocketing the difference. It can fund renovations or consolidate higher-rate debt, but it increases what you owe on your home, so use it carefully.
Frequently Asked Questions
How much does it cost to refinance a mortgage?
Typically 2–5% of the loan amount in closing costs. On a $300,000 mortgage that is about $6,000–$15,000, though no-closing-cost options exist in exchange for a slightly higher rate.
Is it worth refinancing for 1%?
Often yes, especially on a larger balance, but check the break-even point. If you will keep the loan well past the month your savings repay the closing costs, a 1% drop is usually worthwhile.
Does refinancing restart my mortgage?
A new loan resets the term unless you choose a shorter one. Restarting a 30-year clock can raise lifetime interest even at a lower rate, so compare total interest, not just the monthly payment.
See your savings and break-even point
Skip the maths — get an instant, up-to-date figure with our free calculator.
Open the Mortgage Refinance Calculator →Related Guides
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⚠️ Disclaimer: This guide is for general information only and does not constitute financial, tax, or legal advice. Rates and thresholds can change — always check the latest figures on GOV.UK and consult a qualified professional before making decisions.