When Does Refinancing Make Sense?

Understanding the Break-Even Calculation

The most important number in any refinance decision is your break-even point — the number of months it takes for your monthly savings to recoup the costs of refinancing. If you plan to stay in the home past the break-even point, the refinance likely makes financial sense.

Here is how to calculate it: divide your total closing costs by your monthly payment savings. For example, if refinancing costs $4,000 and saves you $200 per month, your break-even point is 20 months. If you plan to stay in the home for at least two more years, the refinance pays for itself and then some.

Keep in mind that this is a simplified calculation. A more thorough analysis considers the time value of money, tax implications, and how resetting your loan term affects total interest paid. Your loan officer can run a detailed comparison showing the true cost over your expected ownership period.

Use our mortgage calculators to estimate potential savings based on current rates and your loan balance.

Rate-and-Term vs. Cash-Out Refinancing

There are two primary types of refinancing, each serving a different purpose:

Cash-out refinances typically come with slightly higher interest rates than rate-and-term refinances. They also reset your loan term, which means you may pay more total interest over the life of the loan even if the rate is lower than your original mortgage. Evaluate carefully whether the cash-out purpose justifies the long-term cost.

Costs Involved in Refinancing

Refinancing is not free. Typical closing costs for a refinance in Florida range from 1.5% to 3% of the loan amount. Here is what you can expect to pay:

• Lender origination fee — Typically 0.5–1% of the loan amount. Some lenders offer no-origination-fee options with a slightly higher rate.
• Appraisal — $400–$700 in most Central Florida markets. Required to confirm the home's current value.
• Title insurance and search — $800–$1,500. Florida requires a new title search and lender's title insurance policy.
• Recording fees and taxes — Florida charges documentary stamp tax on the new mortgage amount (though refinances may qualify for a credit on the existing balance).
• Prepaid items — You may need to fund a new escrow account for taxes and insurance, though your existing escrow balance is typically refunded.

You can pay these costs out of pocket, roll them into the new loan balance, or in some cases accept a slightly higher rate in exchange for lender credits that cover closing costs (a "no-closing-cost refinance"). Each approach has trade-offs your loan officer can explain.

Common Refinancing Mistakes to Avoid

Refinancing can be a smart financial move, but these common mistakes can erode or eliminate the benefits:

• Resetting to a 30-year term without considering the cost — If you are 10 years into a 30-year mortgage and refinance into a new 30-year loan, you are adding 10 years of payments. Even at a lower rate, you may pay more total interest. Consider a 20-year or 15-year term instead.
• Ignoring the break-even point — If you plan to sell or move within two to three years, the closing costs may exceed your savings. Always calculate break-even before proceeding.
• Cash-out refinancing for depreciating purchases — Using home equity for vacations, cars, or consumer spending converts short-term expenses into 30 years of debt secured by your home.
• Not shopping for the best rate — Rates and fees vary between lenders. Getting quotes from multiple lenders can save you thousands over the life of the loan.

Visit our refinance options page for more details on available programs, or reach out for a personalized analysis.