The Two Kinds of Refinance
Rate-and-Term Refinance
You replace your loan with a new one for about the same balance, but with a different rate, a different term, or both. The goal is usually a lower monthly payment, a shorter payoff, or both. You are not taking cash out.
Cash-Out Refinance
You replace your loan with a larger one and take the difference in cash. People use it for things like home improvements or paying off higher-cost debt. It increases what you owe on the house, and the cash is not free money — you pay it back with interest over the life of the new loan.
When Refinancing May Make Sense
- Your rate could drop enough to matter. A small rate change on a large balance can mean real monthly savings — but only if the savings add up to more than the cost of the new loan.
- You plan to stay put. Refinancing has closing costs. If you stay in the home long enough, the monthly savings can pass the break-even point and start paying you back. If you move soon, they may never get there.
- You want a shorter term. Moving from a 30-year loan to a 20- or 15-year loan can cut the total interest you pay over the life of the loan, though the monthly payment usually goes up.
- Your situation changed. Better credit, more equity, or a different income picture can open terms that were not available when you first bought.
When It May Not
- The closing costs outweigh the savings. If the new loan costs $4,000 to close and saves you $100 a month, that is 40 months just to break even. If you might move before then, the refinance loses money.
- You restart the clock. Refinancing into a fresh 30-year loan years into your current one can mean paying interest for longer overall — even if the monthly payment drops.
- Cash-out adds debt. Turning home equity into cash raises your balance and your total interest. It can be the right move for the right reason, but it is not the same as "found money."
- Your credit or equity is not there yet. If the file does not support better terms, a refinance may not improve anything — and the application itself is not free of effort. See the Credit Readiness page if that is the blocker.
The Break-Even Question
Before any refinance, ask one question: how many months until the savings pass the cost? Divide the closing costs by the monthly savings. That is the break-even point in months. Then ask honestly how long you will stay in the home. If the break-even is longer than your plans, the refinance probably is not worth it — even if the new payment looks smaller. The Payment Calculator can help you compare the monthly side of the two loans.
Want someone to run the break-even with your actual numbers? Call or text 515-770-2491, or start an application.
Disclaimers
Personal NMLS #1820018. Bryan Curtis is a loan officer at Pre Approved Mortgage. Only his personal NMLS number is listed here; no company NMLS number is stated.
Education only: this page describes refinancing in general terms. It is not advice for your situation, and it is not a promise of savings, eligibility, approval, rates, or terms. Whether a refinance makes sense depends on your loan, your home, your credit, your plans, and current program guidelines — all decided by lender underwriting of your individual file.
Loan approval, rates, and terms are subject to lender underwriting and program guidelines, and are not promised by this page.