There is a widely repeated rule that rates need to fall by some specific amount before refinancing is worth it. Ignore it. It is a rule of thumb standing in for a calculation that takes about five minutes to do properly.
The only calculation that matters
Refinancing has closing costs. Those costs buy you a monthly saving. Divide one by the other and you get your break-even, the number of months before you are actually ahead.
If you plan to stay in the home well past that point, refinancing makes sense. If you might sell before it, it usually does not, regardless of what rates have done.
That is the whole framework. Everything else is detail.
Reasons that have nothing to do with rates
Rate is the obvious motivation, but several of the better reasons to refinance are not about it at all.
Dropping mortgage insurance. If you bought with an FHA loan and have built equity since, refinancing into conventional financing can remove a mortgage insurance premium that would otherwise stay for the life of the loan. For some borrowers that saving outweighs anything the rate is doing.
Changing your term. Moving from a thirty-year to a fifteen-year raises the payment but cuts total interest substantially. Going the other way frees up monthly cash flow when you need it more than you need the long-run saving.
Leaving an adjustable rate. If you have an ARM approaching adjustment, moving to a fixed rate trades uncertainty for a payment you can plan around.
Removing someone from the loan. After a divorce or a change in circumstances, refinancing is usually how one borrower comes off the mortgage. It is routine and more common than people expect.
On cash-out specifically
A cash-out refinance turns equity into money you can use. It is genuinely useful, and it deserves more scrutiny than it usually gets.
You are borrowing more, secured by your home, spread over a long term. Replacing high-interest credit card debt with mortgage debt can save a great deal of money, provided the cards do not fill back up, which is the part that undoes people. Funding a renovation that adds lasting value is usually defensible. Funding something that depreciates rarely is.
Two things people get wrong
“Refinancing resets my loan to thirty years.” Only if you pick a thirty-year term. You can refinance into a term matching what is left on your current loan, so you are not starting over.
“I just bought, so I can’t.” Sometimes true, some programs impose a seasoning requirement, but not universally. It depends on your loan type and what you are trying to do.
Worth running your actual numbers? Get in touch and we will do the break-even math on your real figures, not an example.