The break-even month is the only refinance number that matters

Refinance conversations focus on the rate. The rate is an input. The output is how long it takes for the saving to repay what the refinance costs. Total the costs — origination, appraisal, title, recording, and anything rolled into the loan balance. Divide by the monthly payment reduction. That is the break-even in months. An owner who expects to sell or refinance again before it arrives is paying to save nothing. Two adjustments make it honest. If the new loan restarts a thirty-year term on a mortgage that is eight years in, the monthly payment falls partly because the term got longer, not because the rate got better — compare total interest, or compare against the same remaining term. And if costs are financed rather than paid at closing, they are still costs; they are just costs with interest on them. A "no closing cost" refinance is not free. The costs are paid through a higher rate, which is sometimes the right trade for an owner who will move soon and the wrong one for an owner who will not. Cash-out is a different decision with the same arithmetic. Borrowing against a home to fund something else converts unsecured or no debt into debt secured by the house. That can be the right call for a renovation that adds value or to retire much more expensive debt, and it is worth naming out loud that the collateral is the place the family lives. Ask for the loan estimate from more than one lender on the same day. The comparison only works when the quotes are contemporaneous. This article is general information, not legal, tax or financial advice. Rules change and every deal is different — check your own case with a licensed professional. Alberto Zaltzberg — Adonait · adonait.com