A lower rate is not automatically a saving, it’s only a saving once the switching costs and any change in loan term are counted. The number that actually matters is how many months it takes to break even, not the rate difference on its own.
A worked example
Say you have a $500,000 loan at 6.40%, 27 years remaining, and a competing offer at 5.85%. The rate cut alone is worth roughly $312 a month. Add up the real cost of switching, a $350 discharge fee from your current lender, perhaps $600 in new-loan establishment and settlement costs, and no break cost since you’re on a variable rate, and total switching costs land around $950. Divide $950 by the $312 monthly saving: roughly 3 months to break even. On a loan you’re keeping for years, that’s a clear win. On a loan you might sell or refinance again within 6 months, it barely clears.
What to add up before comparing rates
| Cost | Applies when |
|---|---|
| Discharge/exit fee | Almost always, from your current lender |
| Break cost | Only if part of your current loan is fixed, always get an actual quote, never an estimate |
| New loan establishment/settlement fee | Most new lenders, amount varies by lender |
| New mortgage registration | Government fee, varies by state |
| Valuation fee | Sometimes charged, sometimes absorbed by the new lender |
The term-reset trap
A refinance that resets the loan back to a full 30-year term can look like a bigger monthly saving than it really is, some of that “saving” is simply spreading the same debt over more years, not a lower true cost. Always compare the new loan against your remaining term, not a fresh one, unless resetting the term is a deliberate choice you’re making for cash-flow reasons.
What to prepare
- Your current loan statement, showing balance, rate and remaining term
- A payout figure or break-cost quote from your current lender if any part is fixed
- Details of any cashback offer, check the conditions, since most carry a minimum-term or clawback clause
Next step: run your own numbers, including multiple loan splits if you have them, in the Refinance Workbench, it calculates the exact break-even month and flags a term-reset automatically.