Mortgage refinancing: how it works and what to compare

What does refinancing a mortgage mean?

Refinancing replaces your current mortgage with a new mortgage. Homeowners may explore it to change the interest rate, monthly payment, loan term, loan type, or amount borrowed. The new loan has its own qualification, disclosures, and closing costs.

When can refinancing be worth exploring?

Start with the outcome you want: a more manageable payment, a fixed rate, a shorter payoff timeline, or access to equity. Then compare the new loan against keeping the current one. A smaller monthly payment is not automatically a lower-cost loan if the repayment period restarts or becomes longer.

How to estimate the break-even point

Divide the refinance costs you expect to pay by the estimated monthly savings. The result is a rough number of months needed to recover those costs. This shortcut does not capture every tax, opportunity-cost, or loan-term difference, so use it as a screening tool rather than a final decision.

Use the refinance calculator to compare principal-and-interest payments, then ask a licensed officer for a full cost comparison.

What to compare on a Loan Estimate

• Interest rate and whether it is locked.
• APR, monthly principal and interest, mortgage insurance, and total payment.
• Origination charges, lender credits, total closing costs, and cash to close.
• The five-year cost comparison and whether the loan includes a prepayment penalty.

For an independent walkthrough, review the CFPB Loan Estimate explainer.

Related decisions

If your goal is to borrow against equity, compare a refinance with a second-lien product before replacing a favorable first mortgage. Read the home equity options comparison or the cash-out refinance guide.