Should I refinance, pay extra, or borrow against my home?

Divide your total closing costs by the monthly payment savings, and round up. If the refinance costs $6,500 and cuts $180 off the payment, you break even at month 37 — just over three years. Stay in the home past that and the refinance pays; sell or refinance again before it and you lost the closing costs. The one nuance the simple ratio hides: if the new loan is longer than what was left on the old one, your lifetime interest can still rise even though every monthly payment is lower.

No, and this is the most expensive misunderstanding in mortgage lending. Stretching a balance with 22 years left back out over 30 years lowers the payment purely by adding 96 more payments. The breakdown here shows total interest under both loans side by side. If total interest goes up, you are buying monthly cash flow with lifetime cost — a legitimate trade when money is tight, but you should know you are making it.

There is no universal threshold — the old "one full point" rule of thumb ignores loan size. What matters is the break-even month against how long you plan to stay. On a large balance, half a point can break even in under two years; on a small balance, even two full points may never pay off the closing costs. Run your own numbers rather than trusting a rule.

More than people expect, because an extra dollar of principal cancels every future interest charge that dollar would have generated. On a $320,000 balance at 6.8% with 27 years left, an extra $200 a month typically shortens the loan by roughly five years and saves tens of thousands in interest. The effect is front-loaded: the same $200 started ten years from now saves far less.

Paying down a mortgage is a guaranteed, risk-free return equal to your rate — a 6.8% loan is a 6.8% return you cannot lose. Investing may beat it over long horizons but is not guaranteed. The usual ordering is: employer 401(k) match first (it is an instant 50%–100% return), then high-rate consumer debt, then the mortgage versus taxable investing question. Keep an emergency fund either way, because principal you send to the servicer is not money you can get back without borrowing it again.

A home equity loan is a lump sum at a fixed rate with a fixed payment from day one. A HELOC is a revolving line: you draw what you need during a draw period (often 10 years) paying interest only, then it converts to a repayment period (often 20 years) where principal is added and the payment jumps. HELOCs are usually variable-rate, tied to the prime rate, so the payment can move even before the draw period ends.

Lenders work from a combined loan-to-value limit: the maximum they will let your first mortgage plus the line reach, as a share of the home value. At an 85% limit on a $450,000 home with a $320,000 mortgage, the ceiling is $450,000 × 85% − $320,000 = $62,500. That is a lending convention, not a rule of law, which is why it is an editable field here — your lender may cap at 80% or stretch to 90%.

Because during the draw period you are only paying the interest, so the balance never moves. When repayment begins, the same balance has to be fully amortized over the remaining years, so principal is suddenly added to every payment. On a $60,000 line the interest-only payment might be around $300 while the repayment payment is closer to $430 — and if the variable rate has risen in the meantime, more still. The breakdown shows both figures and the size of the jump.

Down payment plus closing costs. Closing costs commonly run 2% to 5% of the price and cover lender fees, appraisal, title insurance and search, recording, and prepaid items such as the first year of homeowners insurance and the property tax escrow cushion. On a $450,000 purchase with 10% down and 3% costs, that is $45,000 plus $13,500 — about $58,500 before you have bought a single piece of furniture.

No. Conventional loans go down to 3% for qualified buyers, FHA to 3.5%, and VA and USDA loans to zero for those eligible. What 20% buys you is the avoidance of private mortgage insurance on a conventional loan. PMI is not permanent: you can generally request cancellation once you reach 20% equity, and it terminates automatically at 22% under the Homeowners Protection Act.

Interest on acquisition debt secured by your main or second home is deductible if you itemize, within the limits set by the tax code, and interest on a home equity loan or HELOC is deductible only when the proceeds are used to buy, build, or substantially improve the home securing the loan. Because the standard deduction is large, most households do not itemize and therefore get no deduction at all. Check the current IRS guidance for the year you are filing before you count on it.

In a rent-to-own or lease-option contract, only the rent credit explicitly written into the agreement counts toward the eventual purchase — typically a slice of an above-market rent — and it is usually forfeited if you do not or cannot exercise the option. You also normally pay a non-refundable option fee up front. Compare the total of option fee plus credited rent against a straightforward down payment before assuming it is the cheaper path in.