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The best time to refinance is when you can lower your rate enough to recoup closing costs before you plan to move. A good rule of thumb is to make sure your break-even point is well within your expected time in the home. You should also consider refinancing if you want to switch from an adjustable-rate to a fixed-rate mortgage for payment stability.

The old rule of thumb was a 1% rate drop, but in reality it depends on your loan balance and closing costs. On a large loan, even a 0.5% drop can save hundreds per month, while on a smaller balance you may need a bigger spread to justify the fees. That is why running a break-even calculation like this one matters more than following a blanket rule.

Refinance closing costs generally range from 2% to 5% of the loan amount, or roughly $3,000 to $10,000 on a typical mortgage. These include lender fees, appraisal, title insurance, and recording fees. Some lenders offer no-closing-cost refinances, but they usually roll the costs into a slightly higher rate.

It is possible but more difficult. Conventional refinances typically require a credit score of 620 or higher, while FHA streamline refinances may be available with lower scores if you already have an FHA loan. A lower credit score usually means a higher rate, so you will want to weigh whether the new rate is actually an improvement over what you have now.

A rate-and-term refinance replaces your existing loan with a new one at a different rate or term — the goal is to save on interest or change your payment timeline. A cash-out refinance lets you borrow more than you currently owe and pocket the difference as cash, which is useful for home improvements or debt consolidation but increases your loan balance.