Question 1

When does it make sense to refinance my mortgage?

Accepted Answer

Refinancing typically makes sense when you can reduce your interest rate by at least 0.5-1%, plan to stay in the home long enough to recoup closing costs (break-even point), or want to switch from an adjustable-rate to fixed-rate mortgage. Also consider refinancing to remove PMI if your home value has increased.

Question 2

What is the break-even point on a refinance?

Accepted Answer

The break-even point is the month when your cumulative savings from lower payments exceed the closing costs you paid to refinance. For example, if closing costs are $4,000 and you save $200/month, your break-even point is 20 months. If you plan to sell before reaching break-even, refinancing may not be worth it.

Question 3

What are typical refinance closing costs?

Accepted Answer

Refinance closing costs typically range from 2-5% of the loan amount and include appraisal fees ($300-600), title search and insurance ($700-900), origination fees (0.5-1% of loan), recording fees, and other lender charges. On a $300,000 refinance, expect $6,000-$15,000 in total costs.

Question 4

Should I refinance to a shorter term?

Accepted Answer

Refinancing from a 30-year to a 15-year mortgage typically means higher monthly payments but significantly less total interest. A $300,000 loan at 6.5% over 30 years costs $382,633 in interest; the same loan at 5.8% over 15 years costs only $130,584 — saving over $252,000.

Question 5

Does refinancing reset my mortgage term?

Accepted Answer

Yes, refinancing starts a new loan with a new term. If you're 10 years into a 30-year mortgage and refinance to a new 30-year loan, you're extending your total payoff by 10 years. Consider refinancing to a shorter term (e.g., 20 years) to avoid this pitfall while still lowering your rate.

Question 6

Can I refinance with bad credit?

Accepted Answer

While possible, refinancing with poor credit (below 620) limits your options and may result in higher rates. FHA Streamline refinancing requires less documentation and no appraisal if you already have an FHA loan. Government programs like VA IRRRL are available for veterans. Generally, a credit score of 740+ gets the best refinance rates.

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