Every time rates drop, my phone lights up with the same question: should I refinance? Sometimes the answer is obvious. Usually it's not. The honest version requires doing the math — and being willing to walk away if the math doesn't work.
The break-even calculation
Take the total cost of the refinance (lender fees, title, appraisal, prepaids) and divide by your monthly savings. That's how many months it takes to break even. If you plan to keep the home longer than that, refinancing probably makes sense. If you don't, it probably doesn't. This is the whole calculation, and it takes five minutes.
Cash-out refinance math is different
If you're pulling equity out for a real purpose — paying off high-interest debt, funding a renovation that adds value — the break-even math shifts. You're not just comparing rates, you're comparing the all-in cost of capital against your alternatives. Sometimes the rate goes up slightly and the refi still makes perfect sense.
When not to refinance
Don't refinance to reset your loan term back to 30 years if you're already ten years in and paying it down well — you'll pay more interest long-term even at a lower rate. Don't refinance for a tiny rate drop if your closing costs wipe out years of savings. Don't refinance if you might move in the next eighteen months. The best refinance is sometimes the one you skip.