Rate-and-term refinance: change your rate, your term or both

Your break-even point

The break-even point is how long it takes for your monthly savings to cover the cost of refinancing. Here is a simple example with round numbers:

• ●Closing costs: $4,000
• ●Monthly savings: $100
• ●Break-even: 40 months, a little over three years

If you plan to stay in the home longer than that, the refinance starts paying you back. If you might move sooner, it probably isn't worth it. We work this out with your real numbers.

Changing your loan term

A shorter term, such as moving from 30 years to 15, usually raises your monthly payment but can save a lot of interest over the life of the loan, and you own your home outright sooner. A longer term does the opposite. It can lower your payment when your budget is tight, but you'll pay more interest overall. Some homeowners move to a shorter term without a big payment jump, because a lower rate offsets part of the change. We show you the payment and total interest for each option.

Moving from adjustable to fixed

If you have an adjustable-rate mortgage, your rate can change once the fixed period ends. Refinancing into a fixed rate gives you the same principal and interest payment for the rest of the loan. Many homeowners make this move before their first adjustment so they know what to expect.

Removing mortgage insurance

If you have an FHA loan, the monthly mortgage insurance may last for the life of the loan. Refinancing into a conventional loan once you have enough equity can remove it. If you already have an FHA or VA loan and just want a lower rate with less paperwork, look at the FHA / VA streamline.

Paying closing costs or rolling them in

You can pay closing costs at signing or add them to the new loan balance. Rolling them in keeps cash in your pocket but means you borrow a little more. Some lenders also offer a slightly higher rate in exchange for covering some costs. We lay out each choice so you can pick the one that fits.

What to have ready

Your current mortgage statement, recent pay stubs, two years of W-2s or tax returns, recent bank statements and your homeowners insurance information. Most rate-and-term refinances include an appraisal. For every refinance option, visit the refinance hub.