Planning a Refinance: How to Improve Affordability After Purchase

Overview

Refinancing after purchase can significantly improve affordability when rates decline. Planning for a potential refinance before buying helps you understand both the current affordability and the potential payment reduction if rates fall. Understanding when refinancing makes financial sense prevents costly premature refinances.

What You Need to Know

• Break-even for refinancing: closing costs / monthly savings = months to recover costs
• On a 0.75% rate drop, saving /month with ,000 closing costs: 25-month break-even
• Rate and term refinance: lower rate/payment with same or shorter term -- no cash-out
• Cash-out refinance: take equity as cash -- higher loan balance but can fund home improvements
• Watch: no-closing-cost refis often have slightly higher rates -- compare total cost over expected holding period

Calculate Your Affordability

Use the home affordability calculator with your specific income, debts, and down payment to see your realistic maximum home price range.