Who this is for
- Homeowners whose rate is well above today's rates and who want a lower payment.
- Anyone who wants to switch to a 15-year term and pay off the loan faster.
- Owners with equity who need cash for a clear purpose, like a repair or a debt payoff.
How it works, step by step
- Find your breakeven point by dividing your closing costs by your monthly savings, which tells you how many months until the refinance pays for itself.
- Know that a new 30-year loan resets the clock, so compare the total cost over the years you plan to keep the home, not just the monthly payment.
- Shop it like a purchase loan, getting quotes from three or more lenders and comparing the APR.
- Ask about lender credits if you want to skip paying closing costs up front.
Pros
- A lower payment or a shorter term, depending on what you choose.
- Cash-out refinancing usually costs less than personal loans or credit cards.
- You can remove mortgage insurance once you reach 20% equity.
Cons
- Closing costs run about 2% to 5% of the loan amount, which you need to recover over time.
- Restarting a 30-year term can cost more in total interest, even at a lower rate.
- Cash-out refinances price higher than rate-and-term refinances, the kind that only change your rate or term.