Refinancing
Refinancing — run the break-even before you run the numbers.
A refinance is worth doing when the money you save exceeds the money it costs, before you sell. That sounds obvious and it is routinely ignored, because the conversation usually starts with a rate rather than with how long you are staying. A refinance that saves $180 a month and costs $4,800 takes 27 months to break even. If you are moving in two years, it is a loss dressed up as a saving.
That is the whole analysis, and I will run it honestly — including the version where the answer is do nothing. There are also refinances that are not about the rate at all: dropping mortgage insurance you no longer need, getting off an adjustable rate before it adjusts, consolidating high-interest debt, or pulling cash out for a renovation. Different math, same discipline.
Updated
Refinance at a glance
- Rate-and-term
- Change the rate or the term, no cash out
- Cash-out
- Typically up to 80% loan-to-value
- VA IRRRL
- Light documentation, 0.5% funding fee
- FHA streamline
- Reduced documentation, often no appraisal
- Break-even
- Total cost divided by monthly saving
- Typical timeline
- 21 to 35 days
Right for you if
- Homeowners whose rate is meaningfully above current market
- Anyone paying conventional PMI who now has 20% equity
- FHA borrowers with permanent mortgage insurance and 20% equity, refinancing to conventional
- Adjustable-rate borrowers approaching their first adjustment
- Veterans with an existing VA loan — the IRRRL is genuinely light
- Owners consolidating high-rate debt where the total interest picture improves
Know before you commit
- Closing costs are real; a "no cost" refinance is priced into the rate
- Resetting to a new 30-year term can raise lifetime interest even at a lower rate
- Cash-out pricing is worse than rate-and-term, and equity requirements are stricter
- Rolling unsecured debt into a mortgage secures it against your house
- Break-even only counts if you are actually staying past it
The break-even calculation, done properly
Take every cost of the refinance — lender fees, title, recording, appraisal, prepaid interest — and divide by the monthly payment reduction. That is your break-even in months. Compare it against how long you honestly expect to own the house. If break-even is 27 months and you are moving in 24, the answer is no, regardless of how much better the rate looks.
Two refinements worth making. First, if you are shortening the term, the monthly payment may go up while the total interest drops sharply — break-even is the wrong measure and total interest is the right one. Second, if you have been paying on the current loan for years, resetting to a fresh 30-year term restarts the amortization clock; a 20- or 25-year term often captures most of the saving without giving that back.
The types, and what each is for
| Type | What it does | Typical use |
|---|---|---|
| Rate-and-term | New rate or new term, no cash out | Rate is above market, or moving off an ARM |
| Cash-out | New larger loan, difference paid to you | Renovation, debt consolidation, liquidity |
| VA IRRRL | VA to VA, minimal documentation | Veterans lowering an existing VA rate |
| FHA streamline | FHA to FHA, reduced documentation | FHA borrowers where MIP still applies |
| FHA or VA to conventional | Escapes permanent mortgage insurance | 20% equity and decent credit |
General program guidelines. Cash-out limits, documentation requirements and available terms vary by program and by file.
Cash-out, with the caveat said out loud
Cash-out refinancing is the cheapest large-scale borrowing most households have access to, and it converts unsecured debt into debt secured by your house. Both halves of that sentence are true and both matter. Consolidating a 24% credit card into a mortgage saves real money — and if things go wrong later, the consequence has changed from a collections call to a foreclosure. I will run the numbers and I will also say that part out loud.
What the process looks like
- Same documentation as a purchase: income, assets, credit
- An appraisal in most cases; streamline and IRRRL products sometimes waive it
- A three-day right of rescission after closing on a primary residence — funds disburse after it
- Typically 21 to 35 days start to finish
- Skipping a payment is not free money; it is interest folded into the balance
In their words
Clients who used refinance
Travis and his team are just absolutely wonderful. We just closed on our new house and he was with us every step of the way. This is the 4th time we have used him as our lender over the years and he never disappoints. He is consistent with his knowledge but does it in a way that you feel like you are old friends with him. I tell everyone I know looking to buy a home to call him. I honestly know they will get the same amazing care my husband and I receive by working with him. Can’t say enough good things about him…. If you are looking to buy I highly suggest you reach out to him and his team!
Travis was always there with an answer and guiding me through the whole lending process! Very professional and friendly, feel like I've known him for years...would highly recommend Travis for anyone in the market!!!
Questions
Refinance, answered
There is no universal number, and the old "one percent rule" is not one. Divide the total cost of the refinance by the monthly saving to get your break-even in months, then compare it to how long you are staying. On a large balance a half-point can be plenty; on a small balance a full point may not be.
Yes, and it is one of the best reasons to refinance. If you have conventional PMI you may be able to remove it without refinancing once you hit 80% loan-to-value. If you have FHA mortgage insurance above 90% loan-to-value it is permanent, and a conventional refinance at 20% equity is the way out.
Conventional cash-out generally goes to 80% loan-to-value on a primary residence, so you need at least 20% equity remaining afterwards. VA cash-out can go higher for eligible veterans. Investment properties are tighter.
The costs exist either way. In a "no cost" structure they are paid through a higher rate or added to the balance. That can be the right choice when your break-even window is short — just know which version you are being quoted.
It will if you take a new 30-year term, which can increase total interest even at a lower rate. Ask for the 20- and 25-year options alongside it; on many files they capture nearly the whole saving without resetting the amortization.
More in the full mortgage FAQ, or ask me directly.
This is not an offer to enter into an agreement or a commitment to lend. Not all applicants will qualify. Information and rates are subject to change without notice. All loans are subject to credit review and approval. Program guidelines, fees and loan limits are set by the applicable agency or investor and are subject to change. Fairway Home Mortgage is a division of Fairway Independent Mortgage Corporation. NMLS Entity ID #2289.
Next step
Find out what you qualify for before you shop.
A documented pre-approval takes about 24 hours once your paperwork is in, costs nothing, and tells you whether refinance is genuinely your best route.