The math that actually matters
A lower rate always looks good on paper, but the break penalty is real money out today. The only question that matters is: how long until the monthly savings pay that penalty back? If you're planning to stay in the home well past that point, refinancing wins. If you might sell or move before then, it probably doesn't — run the numbers through the cost of selling calculator too if a move is on the table. The break-even chart above exists precisely to make this trade-off visible rather than abstract — watch where the rising savings line crosses the flat penalty line, and compare that to your actual expected time horizon in the home.
The three reasons people refinance
Refinancing generally comes down to one of three motivations, and it's worth being clear on which one applies to you, since they call for different comparisons. First, chasing a genuinely lower rate to reduce your payment or total interest — this is the scenario the break-even chart is built for. Second, accessing home equity as cash, whether for a renovation, an investment, or consolidating higher-interest debt like credit cards into your mortgage at a much lower rate — here the "return" isn't just the rate difference but whatever the cash is being used for. Third, restructuring your amortization, either extending it back out to lower your monthly payment during a tight period, or shortening it to pay off the home faster — this changes your cash flow even if the rate stays similar.
Why refinancing involves the stress test, but renewing doesn't
Because refinancing effectively means taking out a new mortgage — even if it's with your existing lender — it typically requires requalifying, including passing the mortgage stress test at the higher qualifying rate. This is different from a straightforward renewal at the end of your term, which doesn't require requalifying in the same way. If your income or debt situation has changed since you first qualified, it's worth checking the affordability calculator to confirm you'd still qualify for the amount you're hoping to refinance into.
Debt consolidation: a special case worth a closer look
Rolling high-interest debt like credit cards or personal loans into a mortgage refinance can dramatically lower your total interest cost, since mortgage rates are almost always far below unsecured credit rates. But it also converts short-term debt into long-term, secured debt — spread over 25 years, even a small consolidated balance accrues meaningfully more total interest than paying it off aggressively over 2-3 years would, unless you commit to extra payments afterward rather than just letting it ride the full amortization.