Refinancing saves money only if you stay long enough in the new mortgage for your reduced monthly payment to recover the upfront costs (prepayment penalty, legal fees, appraisal).
The formula
Breakeven months = (penalty + closing costs) ÷ monthly savings
Rules of thumb
- Breakeven under 2 years: strong case to refinance
- 2-4 years: reasonable if you’re staying put
- 4-6 years: marginal, check your likelihood of moving
- Over 6 years: weak case, usually not worth it
The math doesn’t include the value of rate certainty. If you expect rates to rise and you can lock in a lower rate now, a longer breakeven may still be rational.