How refinancing works

A new term, or the years you have left

A new loan of the full term usually lowers the payment the most, but part of that drop comes from spreading what you owe over more years. A new loan over the years you have left keeps your payoff date, so whatever it saves comes from the rate alone. That is the fairer test of a lower rate.

The interest over each loan's life shows the catch: a new full-term loan can cost more interest in all, even at a lower rate, because you pay interest for longer.

Kinds of refinance

A rate-and-term refinance pays off the old loan and its closing costs, with little or no cash to you: the kind our check is about. A cash-out refinance borrows more than you owe and pays you the difference, often at a higher rate. A home equity line of credit leaves your first loan alone and borrows beside it.

What it costs, and when it pays

A new loan has closing costs: the lender's fees, any points, title and an appraisal. A lower rate pays once its savings have repaid them, which is break-even, and once the drop is large enough that waiting for a lower rate is worth less than taking this one. That rate is your trigger rate.

Before you apply

Ask at least three lenders for a Loan Estimate on the same day, and compare their APRs and closing costs, not only their rates. Our numbers are estimates; only a lender's Loan Estimate is an offer.