Refinance Calculator - Should I Refinance? | Zillow (2024)

FAQs

How to determine if refinancing is worth it? ›

It's generally worth it to refinance if you can lower your costs in some way, whether by getting a lower interest rate, a shorter loan term, or a cheaper monthly payment. A lower interest rate means you'll have lower monthly payments compared to your existing mortgage.

Moving into a longer-term loan: If you're already at least halfway through the loan term, it's unlikely you'll save money refinancing. You've already reached the point where more of your payment is going to loan principal than interest; refinancing now means you'll restart the clock and pay more toward interest again.

However, many lenders say 1% savings is enough of an incentive to refinance. Using a mortgage calculator can help you see how much you might save. A lower interest rate will save you on short- and long-term interest while reducing your monthly payments.

If you don't have other debt to consolidate and you're not looking to tap into your home's equity, then a 1% drop in mortgage rates probably isn't worth it if doing so raises your mortgage interest rate. But if you can save money, it may be valuable.

With a cash-out refinance, the borrower takes out a new mortgage for more than the previous loan, uses the funds to repay the old loan, and receives a lump sum cash payment for the remaining funds. As a result, a cash-out refinance increases your monthly payment and mortgage loan debt—please consider carefully.

However, rates aren't expected to dip into the 3% or 4% range in the foreseeable future. At best, prospective homebuyers could expect rates to fall into the lower 6% range throughout the end of 2025.

Key Takeaways. Don't refinance if you have a long break-even period—the number of months to reach the point when you start saving. Refinancing to lower your monthly payment is great unless you're spending more money in the long-run.

How do I know when to refinance? ›

If you can pay off your mortgage much sooner due to an increase in your income, it might make sense to refinance into a shorter-term mortgage. The caveat: While you can secure a lower mortgage rate with a shorter loan term, you'll have a higher monthly payment since there's a shorter amortization schedule.

If you have a mortgage with a higher balance and rate, a drop of 0.5% interest could be worth refinancing, according to Dell. "For a lower balance, rate and term refinance, it may be at least 1% or more to be worth your time and money," Dell says.

You likely wouldn't want an ARM when interest rates are heading higher. However, monetary policy experts believe that we are at the top of the current interest rate cycle. If that's true, this might be an opportune time to consider refinancing to an adjustable-rate mortgage.

For example, “today, a borrower with excellent credit can get a 30-year mortgage at around 3%. If that describes you, you might benefit from a refinance if your current loan has a rate of 3.75% or higher.

"For a lower balance, rate and term refinance, it may be at least 1% or more to be worth your time and money," Dell says. It's also important to consider how long you plan on living in the home.

If you have a lot of high-interest debt, getting a cash out refinance at a higher interest rate than your current mortgage rate might make sense.

Home equity requirements by loan type

Conventional refinance: For conventional refinances (including cash-out refinances), you'll usually need at least 20 percent equity in your home (or an LTV ratio of no more than 80 percent). This also helps you avoid private mortgage insurance payments on your new loan.