When should I refinance?
November 18, 2025
Education
I can think of a few reasons why you'd want to refinance. Here are a couple:
You need the cash (cash out refinance)
You need a lower monthly payment (budget reasons)
You want to pay your mortgage off sooner/want to save on interest
You need the cash
The first reason, you need the cash, has less to do with interest rates, and your need for cash, and using a mortgage is the way to get the cash with the lowest impact on your monthly payments. (because it's financed for 30 years vs 5 or 6 years on auto/personal loans)
I can't help much with this one.
Just try to get a low/no- cost refinance option. Online lenders (specifically Rocket Mortgage) have trained their loan officers to offer the lowest interest rate possible with the highest allowable fees.
You don't feel the impact of those fees, because they're rolled into your new mortgage balance.
But it's eating your equity.
Here's a note for first-time refinancers that need cash:
You can only go up to 80% of the home's value with your new mortgage.
Example:
Value: 400k
Max new loan: $320k
That's only in the case that you need cash. If you don't need cash, you can go up to 95% - 97% of the home's value on a conventional loan.
You need a lower monthly payment
I'll have a harder time helping here too.
Some people will jump at $50 in monthly savings, even if it mean $20,000 in fees.
Another trick a loan officer will use to make it more appealing is they'll say "AND you skip two mortgage payments"
"Wait, I can lower my bill by $50 per month and I don't have to make two mortgage payments? Where do I sign?"
A quick explanation on how this works:
Say your refinance is scheduled to close on December 1st.
You don't make your December 1st payment, because your mortgage is getting paid off with the refinance.
Your first payment isn't scheduled until February 1st.
Hence the "skip two payments"
But really, they're charging you all of the interest for December up front and wrapping it into the mortgage balance.
It just pushes everything back.
All I can say here is to be careful here. If you really need the $50 per month, and if you really need to 'skip' two mortgage payments, check the fees.
Please.
It'll make you think twice.
You want to save on interest/faster payoff
If I didn't need the cash, and if I wasn't hurting for a relief on the budget, here's how I'd approach a refinance:
Go for a no-cost refinance.
Here's a post that digs into this.
The gist of it is, you get a rate that comes with a lender credit, and that lender credit offsets all of your lender fees.
When you go that route, even if you only lower your rate by 0.375% you did it at $0 in fees, and that makes it worth it.
Let's think of it like a race.
You have your current mortgage. It has a pace until the finish line. That pace is an amortization schedule.
If you keep making your fixed monthly payment, you'll know exactly what your balance will be 3 years and 2 months from now.
When you refinance, you'll have the chance to review a new amortization schedule.
Just search for "amortization schedule" or ask chat GPT to create one for you.
You need to provide the current mortgage balance, the interest rate, and the monthly payment (principal and interest)
You can find these things on your most recent mortgage statement.
Then compare that to the newly proposed refinance loan.
Check out the charts side by side.
I'll create one for you just to show you what I mean.
example
Let's pretend you are considering a refinance, it will lower your rate 0.5% but it will also increase your balance by $5,000 (closing costs wrapped into the new loan) In this scenario your loan officer won't provide you with a $0 cost option for whatever reason
Current loan: $300k $1,950 p/i payment and 6.5% rate. with 332 months remaining
Proposed loan: $305k $1,828 p/i payment and 6% rate with 360 months remaining
Check this out. Even though you'll be paying a lower interest rate, you won't save on interest if you only make the minimum payments.
Current loan remaining interest: $346,779
Proposed loan remaining interest: $353,306
It would save you $100 per month, but you'd pay it 28 months slower, you'd pay $5k in costs, and you'd pay $6k+ in more interest.
So if your goal is to pay less in interest, then this route doesn't help you. you'd fall in the bucket of "You need a lower payment"
This example charges you more interest and you pay it off later than your current schedule.
same example, but slightly different
Alright so let's take these same numbers but make a change.
Remember, you don't HAVE to pay the minimum. You can pay more.
So for the proposed loan, let's keep your payment the same. After all, you're in this camp because you want to save on interest and pay it off faster.
Let's adjust that payment to $1,950 now. Match the current loan's payment with the proposed loan's payment.
Proposed loan: 6% $305,000 balance and $1,950 payment (p/i)
Here's the total interest: $290,648
That saves you $56k in interest
here's how long it'll take to pay off:
305 months
That saves you 27 months.
So this seems like a good deal. But let's chart out the pace of each mortgage to see if it is actually a good deal or not. I'm going to chart out 5 years.
| Pmt | Current Loan | Proposed Loan |
|---|---|---|
| 1 | $299,675.00 | $304,575.00 |
| 2 | $299,348.24 | $304,147.88 |
| 3 | $299,019.71 | $303,718.61 |
| 4 | $298,689.40 | $303,287.21 |
| 5 | $298,357.30 | $302,853.64 |
| 6 | $298,023.40 | $302,417.91 |
| 7 | $297,687.70 | $301,980.00 |
| 8 | $297,350.17 | $301,539.90 |
| 9 | $297,010.82 | $301,097.60 |
| 10 | $296,669.63 | $300,653.09 |
| 11 | $296,326.59 | $300,206.35 |
| 12 | $295,981.69 | $299,757.39 |
| 13 | $295,634.92 | $299,306.17 |
| 14 | $295,286.28 | $298,852.70 |
| 15 | $294,935.75 | $298,396.97 |
| 16 | $294,583.31 | $297,938.95 |
| 17 | $294,228.97 | $297,478.65 |
| 18 | $293,872.71 | $297,016.04 |
| 19 | $293,514.53 | $296,551.12 |
| 20 | $293,154.40 | $296,083.88 |
| 21 | $292,792.32 | $295,614.30 |
| 22 | $292,428.27 | $295,142.37 |
| 23 | $292,062.26 | $294,668.08 |
| 24 | $291,694.26 | $294,191.42 |
| 25 | $291,324.27 | $293,712.38 |
| 26 | $290,952.28 | $293,230.94 |
| 27 | $290,578.27 | $292,747.09 |
| 28 | $290,202.24 | $292,260.83 |
| 29 | $289,824.17 | $291,772.13 |
| 30 | $289,444.05 | $291,280.99 |
| 31 | $289,061.87 | $290,787.40 |
| 32 | $288,677.62 | $290,291.33 |
| 33 | $288,291.29 | $289,792.79 |
| 34 | $287,902.87 | $289,291.76 |
| 35 | $287,512.34 | $288,788.21 |
| 36 | $287,119.70 | $288,282.16 |
| 37 | $286,724.93 | $287,773.57 |
| 38 | $286,328.03 | $287,262.43 |
| 39 | $285,928.97 | $286,748.75 |
| 40 | $285,527.75 | $286,232.49 |
| 41 | $285,124.36 | $285,713.65 |
| 42 | $284,718.79 | $285,192.22 |
| 43 | $284,311.01 | $284,668.18 |
| 44 | $283,901.03 | $284,141.52 |
| 45 | $283,488.83 | $283,612.23 |
| 46 | $283,074.39 | $283,080.29 |
| 47 | $282,657.71 | $282,545.69 |
| 48 | $282,238.77 | $282,008.42 |
| 49 | $281,817.57 | $281,468.46 |
| 50 | $281,394.08 | $280,925.81 |
| 51 | $280,968.30 | $280,380.43 |
| 52 | $280,540.21 | $279,832.34 |
| 53 | $280,109.80 | $279,281.50 |
| 54 | $279,677.06 | $278,727.91 |
| 55 | $279,241.98 | $278,171.55 |
| 56 | $278,804.54 | $277,612.40 |
| 57 | $278,364.73 | $277,050.47 |
| 58 | $277,922.54 | $276,485.72 |
| 59 | $277,477.95 | $275,918.15 |
| 60 | $277,030.96 | $275,347.74 |
Did you catch that?
It will take 47 months for the new loan to outpace the current loan
This is why I love $0 cost refinances
The new mortgage will outpace the current mortgage IMMEDIATELY
This one takes almost 4 years
So ask yourself...
Are you moving in 2 years?
If you are, does this new mortgage put you in a better spot?
No, you'll be ~$2,500 worse off
Do you want to see your new mortgage outpace your current one sooner than 4 years?
Do you think it's likely you'll refinance before 4 years?
If you do refinance before 4 years, you'll be kicking yourself because this refinance game is setting your further back than if you had just stayed the course.
So this is why I go for the no-cost refinance.
You won't kick yourself. You'll always put yourself in a better position then you were before.
I made a calculator for you. It doesn't show the charts like I displayed here, but it does tell you the exact month your new loan will outpace the current loan.
I hope it helps!