Debt Elimination Series
Debt · Refinance
When Refinancing Actually
Saves You Money
Refinancing isn't free. There are closing costs ($3K-$8K typical), the loan resets to year 1 of amortization, and you re-start the slow-equity-build cycle. The right rate cut wins. The wrong refi just shifts costs and delays equity.
The rate-drop threshold for a refi to make sense
As a rule of thumb. Below that, closing costs eat the monthly savings. Above that, the break-even on closing costs typically arrives within 2-3 years.
The break-even math
Break-even = Closing costs ÷ Monthly payment savings.
Example: $5K closing costs, $250/mo savings. Break-even = 20 months. After 20 months you're ahead. If you sell or refi again before month 20, you LOST money.
Always ask: how long do you plan to stay in this house? If less than the break-even window, skip the refi.
The three legitimate reasons to refi
Significantly lower rate
Rates dropped 0.75%+ from your current rate. Break-even within 2-3 years. You plan to stay past break-even.
Drop PMI
You're paying Private Mortgage Insurance (because you put less than 20% down). If your home has appreciated enough that you're now at 20% equity, refinancing can eliminate PMI — often a $100-$300/month savings on its own.
Shorten the term
Refinance a 30-year into a 15-year. Monthly payment goes up, but you save HUGE amounts of interest over the life of the loan. Best for high earners with strong cash flow.
The bad refi: cash-out for consumption
Pulling equity out of your home to pay credit cards, buy cars, or fund vacations turns secured low-interest debt into a higher long-term cost. You stretch consumption costs over 30 years of mortgage payments — paying 6%+ interest for decades on a vacation you took last year. Almost never the right move.
Run the refi math before deciding
We'll calculate your real break-even, factor in your time horizon, and tell you whether refi makes math sense — or whether to skip it.
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