Mortgage refinancing replaces your existing home loan with a new one, typically at a lower interest rate. The goal is to reduce your monthly payment, lower the total interest you pay, or switch from an adjustable-rate to a fixed-rate mortgage. Refinancing can also be used to shorten your loan term so you pay off your home faster.

The most important number to consider is the break-even point - the number of months it takes for your monthly savings to cover the closing costs. If you plan to stay in your home longer than the break-even period, refinancing likely makes financial sense. For example, if you save $200 per month and closing costs are $5,000, you break even in 25 months.

Keep in mind that extending your loan term during a refinance can lower your monthly payment but may increase the total interest paid over the life of the loan. A 30-year refinance on a loan with 25 years remaining adds 5 extra years of payments. Compare the total cost of both scenarios, not just the monthly payment, to make the best decision.