Introduction

Refinancing can cut your monthly payment, shorten your term, or free up cash for renovations. But in 2025, fees, points, and closing costs vary widely. This guide shows how to calculate the break-even point and decide whether a refinance actually saves money.

Reasons to Refinance

• Lower your interest rate and monthly payment
• Switch from adjustable to fixed rate
• Shorten the term (30 → 15 years) to crush total interest
• Cash-out for projects or debt consolidation (use carefully)

Costs to Watch

Typical costs include lender fees, appraisal, title, and points. Expect 2–5% of the loan amount depending on market and credit profile. Always compare a no-points offer vs. paying points (prepaid interest) to secure a lower rate.

Break-Even Calculation (Quick)

1. Compute the new monthly payment vs. your current payment.
2. Find the monthly savings (old – new).
3. Divide total closing costs by monthly savings = months to break even.

If you plan to sell before the break-even month, refinancing likely doesn't make sense.

Example

Current: €260,000 balance @ 6.5%, 25 years left. New: 5.6% with €3,900 in costs. Monthly savings = €145. Break-even ≈ 27 months. If you'll keep the home 5+ years, you're ahead.

Credit, LTV, and DTI

Refi approvals weigh credit score, loan-to-value, and debt-to-income. Scores above 720 and LTV under 80% get the best pricing. Clean up card balances before applying to improve results.

Fixed vs ARM in 2025

If rates are volatile, locking a fixed rate brings peace of mind. ARMs can work when you know you'll move before adjustment, but model worst-case.

Case Study

A family refinanced from 6.7% to 5.5% on a €320k balance, paying €4,800 in costs. Savings of €176/month → break-even in 27 months → €12,000+ interest saved over 7 years after break-even.

Bottom Line

Refinancing is math, not magic. Compare at least three lenders, compute break-even, and consider your time horizon. If the numbers work and you'll stay put, a refi can meaningfully boost cash flow and reduce lifetime interest.