6. Know your time horizon and do the math
It is always good to know your break-even period, especially if you think you may not stay in your current home for longer than a few years.
For example, if we assume refinancing saves you $200 per month, divide the monthly savings by your out of pocket costs. In this instance lets assume closing costs and points total $3,500. The break-even period would be 17.5 months. This means you would need to stay in your current home at least 18 months for the cost of refinancing to add value.
When you calculate your break-even period include items like points paid, lender fees, appraisal, etc., but exclude prepaid items such as interest, taxes, and property insurance.