When does refinancing actually make sense?

The only formula that matters

Divide your total refinance cost by your monthly savings. That's your break-even in months. Refinance costs of $6,000 with $210 a month saved gives 28.5 months. If you plan to keep the home and the loan past that point, the refinance wins. If you might sell or refinance again sooner, it doesn't.

Ignore the old "wait for a 1% rate drop" rule. On a $600,000 loan, a 0.5% drop clears break-even quickly; on a $140,000 loan, even 1% might not.

Reasons that aren't about rate

Dropping mortgage insurance. FHA (Federal Housing Administration loan — a government-backed loan built for buyers with lower credit scores or smaller down payments) loans made after June 2013 with low down payments carry MIP (mortgage insurance premium — the FHA version of mortgage insurance — an upfront fee plus a monthly fee added to your payment) for the life of the loan. Once you have 20% equity, refinancing to conventional can save $150–$300 a month even at a similar rate.

Shortening the term. Moving from a 30-year to a 15-year raises the payment but can save six figures in interest.

Getting out of an ARM (adjustable-rate mortgage — a loan whose interest rate is fixed for a few years and can then move up or down) before the adjustment period, or removing a co-borrower after a divorce, are structural reasons that stand on their own.

The traps

Rolling costs into the loan feels free and isn't — you're financing them for 30 years. Restarting the amortization clock after seven years of payments can raise total interest even at a lower rate; ask for a comparison against your current payoff schedule, not just the new payment.

Also watch cash-out refinances that pay off credit cards. The math often works, but only if the cards stay at zero. Converting unsecured debt into debt backed by your home raises the stakes of a future job loss.