Quick answer
It depends on the goal. To cut your rate, a refinance one point lower on a $340,000 balance saves $303 a month and is fully paid back in about 3 years 1 month with costs at 3% of the loan. To drop FHA mortgage insurance, it can pay even at the same rate. To shorten the term, compare it with paying extra on the loan you have. To take cash out, judge the effective rate on the new money: $50,000 taken from a 3.75% loan costs about 19.33% a year.
Key facts
7.24%
30-year fixed average used as the new rate
Freddie Mac Primary Mortgage Market Survey · Week of Oct 29, 2026
6.6%
15-year fixed average used for the shorter term
Freddie Mac Primary Mortgage Market Survey · Week of Oct 29, 2026
Name the goal before you look at rates
“Rates are down, should I refinance?” is the wrong first question. A refinance replaces your loan with a new one and charges you 3%–6% of the principal to do it, so it is worth it only if it does a specific job better than the cheaper alternatives. There are four common jobs, and each has its own pass-or-fail number.
| Your goal | What “worth it” means | The number to check | Cheaper alternative to rule out first |
|---|---|---|---|
| Lower the rate | Savings repay the costs before you move or refinance again | Full break-even month vs years you’ll stay | None — but shop several lenders |
| Drop mortgage insurance | Payment without MIP or PMI is lower, net of costs | Payment change and break-even | Cancelling PMI on a conventional loan |
| Pay the loan off sooner | Less total interest after closing costs | Interest + costs vs prepaying | Extra principal on the current loan |
| Take cash out | The money costs less than other ways to borrow it | Effective rate on the new money | A HELOC or home equity loan |
The examples below use today’s 7.24% 30-year and 6.6% 15-year averages as the new rates, and closing costs at the low end of Freddie Mac’s range unless stated. Your current rate is an example set relative to today’s average. The break-even guide explains the formula behind the numbers.
Goal 1: a lower rate — measured against how long you’ll stay
Rate cuts are where most people start, and the test is simple: do the savings repay the costs before the loan ends for you — by a sale, a move or another refinance?
A one-point cut on $340,000 with 27 years left
| Current loan | New 30-year loan | |
|---|---|---|
| Rate | 8.24% | 7.24% |
| Principal and interest | $2,620 | $2,317 |
| Monthly saving | $303 | |
| Closing costs (3%, paid in cash) | $10,200 | |
| Simple break-even (costs ÷ saving) | 2 years 10 months | |
| Full break-even (counts the balance you still owe) | 3 years 1 month |
The full break-even comes later than the simple one because the new loan starts over at 30 years and pays down principal more slowly at first. Even so, the lower rate means $14,734 less interest over the life of the new loan than the old one would have charged.
Costs matter as much as the rate. At the high end of the range the same refinance costs $20,400 and takes 6 years 5 months to pay back:
| You keep the new loan for | Costs at 3% ($10,200) | Costs at 6% ($20,400) |
|---|---|---|
| 2 years | −$3,506 | −$13,706 |
| 4 years | +$2,926 | −$7,274 |
| 7 years | +$11,923 | +$1,723 |
| 10 years | +$19,854 | +$9,654 |
If you can’t say with some confidence that you’ll stay past the break-even month, the refinance is a bet, not a saving. Try your own figures in the refinance break-even calculator, which opens with this example filled in.
Goal 2: dropping FHA mortgage insurance
Here the rate can stay the same and the refinance still pays. If your FHA loan started above 90% of the home’s value — less than 10% down — the annual mortgage insurance premium of 0.55% generally lasts for the life of the loan. It doesn’t cancel at 20% equity the way PMI does, so refinancing into a conventional loan with at least 20% equity is the usual way out.
Say you owe $285,000 on an FHA loan at a rate equal to today’s 7.24% average, with 28 years left, and your home is now worth $380,000 — so you owe 75% of its value. This year’s MIP adds about $131 a month to $1,982 of principal and interest.
- Same rate, same 28 years left: the payment falls by exactly the MIP. $8,550 of costs pay back in 5 years 6 months, and over the remaining term you end up $20,394 ahead — roughly $28,944 of MIP you no longer pay, less the costs.
- Same rate, new 30-year term: the payment falls further, to $1,942 ($171 less), but two extra years of payments add $33,214 of interest. Counting costs, you finish $12,820 behind over the life of the loan.
- How much rate you can give up: on the matched term, the new loan could carry up to 7.92% — about 0.68 of a percentage point above your current rate — before the payment went up.
The guide to refinancing out of PMI or MIP covers the FHA rules and why most conventional borrowers can cancel PMI with a letter instead.
Goal 3: paying the loan off sooner
A shorter term raises the payment, so there is no monthly saving to divide costs by. The right comparison is with the free alternative: keep your loan and send the same extra amount as principal each month.
Say you owe $220,000 with 25 years left at 7.74%. A 15-year refinance at today’s 6.6% average raises the payment by $268.
| Option | Monthly payment | Paid off in | Interest | Closing costs | Interest + costs |
|---|---|---|---|---|---|
| Keep the loan as it is | $1,660 | 25 years | $278,084 | $0 | $278,084 |
| Keep it and pay $268 extra a month | $1,929 | 17 years 4 months | $179,250 | $0 | $179,250 |
| Refinance into a 15-year at 6.6% | $1,929 | 15 years | $127,139 | $6,600 | $133,739 |
Here the 15-year refinance costs $45,510 less than paying extra on the loan you have. The 15-year refinance wins when its rate is well below your current one, because a lower rate works on every dollar of the balance for the whole term. When the gap is small, prepaying usually wins: there are no closing costs, and you can stop paying extra in a tight month — a 15-year payment is a contract. You can test the prepaying side in the extra payment calculator. The trade-offs of the two terms are set out in 15-year vs 30-year mortgage.
Goal 4: taking cash out — find the real rate on the new money
A cash-out refinance doesn’t only price the cash you take. It reprices your whole balance. If your current rate is below today’s, that is the hidden cost.
$50,000 out of a $240,000 loan at 3.75%, home worth $420,000
| Keep the old loan | Cash-out refinance | |
|---|---|---|
| Loan amount | $240,000 | $298,700 (incl. $8,700 costs) |
| Rate | 3.75% | 7.24% |
| Years left | 25 | 30 |
| Principal and interest | $1,234 | $2,036 |
| Extra interest over the loan’s life | $303,954 | |
| Effective rate on the $50,000 | 19.33% |
The effective rate is the interest rate at which $50,000 received today equals every extra payment you make because of it — the $802 monthly increase for 25 years, then five more years of the full payment. It is higher than the new loan’s headline rate of 7.24% because the refinance also moves $240,000 from 3.75% to today’s rate. The new loan is 71% of the home’s value, inside Fannie Mae’s 80% cash-out limit, so it qualifies; the question is whether the money is worth that price.
Compare the effective rate with a home equity line of credit, which is usually priced at the prime rate (7%) plus a margin and leaves your first mortgage alone. The cash-out refinance vs HELOC guide runs that comparison in detail. If your current rate is above today’s, the logic flips and the cash-out may be the cheaper option.
The scorecard: what to compare besides the payment
A lower monthly payment is the number lenders lead with and the least reliable guide to whether a refinance pays. Put the four examples side by side:
| Goal | Payment change | Costs | Full break-even | Lifetime interest change |
|---|---|---|---|---|
| Lower the rate | −$303 | $10,200 | 3 years 1 month | −$14,734 |
| Drop FHA MIP | −$131 | $8,550 | 5 years 6 months | $0 (and $28,944 of MIP gone) |
| Shorten to 15 years | +$268 | $6,600 | 2 years 4 months | −$150,945 |
| Take $50,000 cash out | +$802 | $8,700 (rolled in) | not a saving | +$303,954 |
Three things explain most of the gaps between “lower payment” and “better deal”:
- Total interest. The cash-out adds $303,954 of lifetime interest — the price of the cash plus the repricing of the old balance. A rate cut that restarts a loan with many years already paid off can add interest too.
- The reset term. Each new 30-year loan adds back the years you had already paid. Ask whether the lender offers a term that matches the years you have left, as the FHA example shows.
- Costs. 3%–6% of the loan is a wide range — $10,200–$20,400 on $340,000. Compare the Loan Estimates from several lenders line by line; lender fees and points are where offers differ most.
Deciding in six steps
Write down the goal
Lower rate, no mortgage insurance, earlier payoff or cash. Then name the cheaper alternative you’ll compare against.
Pull your current numbers
Balance, rate and months left from your statement, plus a realistic estimate of the home’s value.
Get Loan Estimates on the same day
Ask two or three lenders for the same loan amount and term, and total sections A, B, C and E.
Run the full break-even
Use the payment saving and the balance you’ll owe, not the payment alone.
Compare totals over the years you’ll stay
Interest plus costs for the refinance against the alternative over that period.
Check the warning signs
A planned move, a prepayment penalty or a loan that is nearly paid off can turn a good-looking deal into a loss.
The last step has its own guide: when not to refinance walks through the six situations where a refinance usually loses money.
Frequently asked questions
How much lower does my rate need to be to refinance?
There is no fixed rule — it depends on costs and how long you stay. In our example a one-point cut on $340,000 pays back in 3 years 1 month with costs at 3% of the loan, but takes 6 years 5 months at 6%. A smaller cut stretches both.
Does refinancing restart my mortgage?
Only if you choose a new 30-year term. Ask whether the lender offers a term that matches the years you have left: that keeps your payoff date while still lowering the rate. Restarting at 30 years lowers the payment more but adds payments at the end.
Should I refinance to get rid of PMI?
Usually not on a conventional loan: you can ask your servicer to cancel PMI at 80% of the original value, and it ends automatically at 78%. FHA annual MIP on loans with less than 10% down generally lasts for the life of the loan, so a refinance to conventional is the usual way out.
Is it worth refinancing into a 15-year loan?
Compare it with paying the same extra amount on your current loan. In our example the 15-year refinance at 6.6% costs $133,739 in interest and fees, against $179,250 for prepaying a 7.74% loan — the refinance wins by $45,510.
What does a refinance cost?
Freddie Mac puts typical refinance costs at 3%–6% of the loan principal — $10,200–$20,400 on a $340,000 loan. Rolling them into the loan avoids paying cash but adds interest and pushes the break-even later.
Is a cash-out refinance a good way to borrow?
Only if the effective rate on the cash beats the alternatives. Taking $50,000 out of a 3.75% loan at today’s 7.24% average costs about 19.33% a year on the new money in our example, because the whole balance moves to the higher rate.
How soon can I refinance after buying?
It depends on the loan. A Fannie Mae cash-out refinance generally requires the existing first mortgage to be at least 12 months old, and an FHA Streamline needs 210 days since closing and 6 payments made. Check your note for a prepayment penalty as well.
Sources
- Freddie Mac Primary Mortgage Market Survey — 30-year fixed rate, national weekly average; 15-year fixed rate, national weekly average (Week of Oct 29, 2026)
- Freddie Mac My Home — Typical refinance closing costs, low end (share of loan principal); Typical refinance closing costs, high end (share of loan principal) (Oct 28, 2026)
- HUD Mortgagee Letter 2023-05 — FHA annual MIP, 30-year loan, more than 95% LTV; FHA annual MIP ends after 11 years when the starting LTV is at or below (Feb 22, 2023)
- Federal Reserve H.15 — Bank prime loan rate (Oct 28, 2026)
- Fannie Mae Eligibility Matrix — Fannie Mae cash-out refinance maximum LTV, one-unit principal residence (Apr 1, 2026)
- CFPB — Ask your servicer to cancel PMI at this share of original value; PMI ends automatically at this share of original value (Oct 28, 2026)
- Fannie Mae Selling Guide B2-1.3-03 — Fannie Mae cash-out: existing first mortgage must be at least (Dec 10, 2025)
- FDIC Affordable Mortgage Lending Guide (summary of HUD Handbook 4000.1) — FHA Streamline: days that must pass since the current loan closed; FHA Streamline: monthly payments already made (Oct 28, 2026)
- CFPB: Loan Estimate explainer
Last reviewed Figures are checked against the sources above. Read our editorial policy. This page is general information, not financial advice — see the disclaimer.