What Does It Mean to Refinance?
Refinancing means replacing your current mortgage with a new one — ideally with a lower interest rate, a better term, or both. When done at the right time and for the right reasons, refinancing can save you tens of thousands of dollars over the life of your loan.
The Golden Rule: The Break-Even Point
Before refinancing, always calculate your break-even point. This is the number of months it will take for your monthly savings to offset the closing costs of the new loan.
Formula: Break-Even = Closing Costs ÷ Monthly Savings
Example: If your closing costs are $4,000 and you save $200/month, your break-even is 20 months. If you plan to stay in your home longer than that, refinancing likely makes sense.
Top 5 Reasons Homeowners Refinance
1. Lower Your Interest Rate
Even a 0.5% reduction in your rate can save thousands over the life of a loan. On a $350,000 mortgage, dropping from 7.5% to 6.75% saves roughly $160/month — or $57,600 over 30 years.
2. Shorten Your Loan Term
Refinancing from a 30-year to a 15-year mortgage can dramatically reduce total interest paid — though monthly payments will increase. Best for homeowners with increased income who want to build equity faster.
3. Switch from Adjustable to Fixed Rate
If you have an ARM (adjustable-rate mortgage) and rates are rising, locking into a fixed rate provides payment stability and peace of mind.
4. Cash-Out Refinance
Access your home's equity by refinancing for more than you owe. The difference comes to you in cash — ideal for major home improvements or consolidating high-interest debt.
5. Remove Private Mortgage Insurance (PMI)
If your home has appreciated and you now have 20%+ equity, refinancing can eliminate PMI, which typically costs 0.5–1.5% of your loan amount annually.
When Refinancing Doesn't Make Sense
- You plan to move within 1–2 years (before reaching break-even)
- You're far into your loan term (most interest has already been paid)
- Your credit score has declined significantly since your original loan
- The rate difference is minimal (less than 0.5%)
Refinancing Requirements in 2025
To qualify for a conventional refinance, lenders generally look for: a credit score of 620 or higher, at least 20% equity (for best rates), stable income documentation (W-2s, tax returns), and a debt-to-income ratio below 43%.
Next Steps
Use our free mortgage calculator to estimate your potential savings, then speak with a True Equity Line loan officer to get a personalized rate quote — with no commitment and no impact to your credit score.