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Quick take: The deciding factor is your break-even—how long it takes monthly savings to repay upfront costs. If you expect to keep the home and the loan beyond that point, a refinance can be worthwhile; if not, you may spend more than you save.

How to know it’s the smart time to refinance

1. Your break-even fits your timeline. Add up estimated closing costs (lender, title, appraisal, recording, etc.) and divide by your projected monthly payment reduction. That quotient—your break-even in months—should be comfortably shorter than how long you plan to keep the home and the new loan.
2. You have a clear objective. Good reasons include:
   • Remove PMI once your equity and guidelines allow.
   • Shorten the term to pay the home off faster.
   • Consolidate higher-cost debts thoughtfully into a single payment (with a plan to avoid re-accumulating balances).
   • Change loan type to better match your risk tolerance or financial goals.
3. Total costs are reasonable. Fees should align with the benefit you’ll receive within your expected holding period. Compare quotes side-by-side and read fee itemizations carefully.
4. You maintain healthy reserves. You shouldn’t have to drain emergency savings to close.
5. Your credit and documentation are ready. Stronger credit and clean income/asset documentation typically help with pricing and fees.

A simple break-even example you can reuse

Common pitfalls to avoid

• Chasing a lower payment without the math. Small monthly reductions can be erased by upfront fees if you sell or refinance again too soon.
• Resetting the 30-year clock by default. Consider a custom term (e.g., 22 years) to stay on track with your payoff.
• Overlooking credit and costs. Shop, verify, and make sure the total cost aligns with your timeframe and goals.