What “break-even” means
Refinancing isn’t free — you pay closing costs (typically 2%–5% of the loan). The break-even point is how many months of lower payments it takes to recover those costs. If you’ll stay in the home past break-even, refinancing usually pays off; if you might move sooner, it may not.
Watch the loan term
Refinancing a loan with 27 years left into a fresh 30-year term lowers the monthly payment but restarts the clock — you can pay more total interest even at a lower rate. Refinancing into a shorter term (e.g. 15 years) raises the payment but can save a lot of interest.
When refinancing makes sense
A common rule of thumb is a rate drop of at least 0.5%–1%, a break-even within the time you plan to stay, and no costly prepayment penalty on the current loan. Removing PMI or a cash-out refinance can be other reasons to refinance.