Homeowners who are well into repaying their mortgages face a dilemma: Does it make sense to refinance when their balance is half or less than when they started? Not always. Especially for people at the middle toward the end of their existing mortgage term, the costs and stress of refinancing could outweigh — and in some cases, actually negate — any potential savings. Here’s how it could impact you.

Should I still refinance if I have paid off most of my mortgage?

It is important to understand your goal when refinancing your mortgage – whether that’s reducing your monthly payment, securing a lower interest rate or accessing cash.

According to Rocke Andrews, president of the National Association of Mortgage Brokers, that’s the first question you need to consider if you’re thinking about refinancing. Here are some of the most common reasons that you might want to refinance – and why they may or may not make sense.

Refinancing to lower monthly payments

For many people, simply lowering the monthly payments is the main goal, Andrews notes. Borrowers near the end of their original mortgage term are most likely to want to reduce their payment if they are preparing to retire and anticipating a change in their income as a result.

But, while lowering monthly payments can create some flexibility in your household budget, it doesn’t necessarily translate to long-term savings. That’s because lower monthly payments are often made possible by extending the term of the loan, which means paying more in interest in the long run. If that’s the case, you might be better off sticking it out with your original loan (as long as you can still cover the monthly payments).

Refinancing to get a lower interest rate

Similarly, you might be tempted to refinance if you find an interest rate that’s less than your current one (although that’s unlikely at the moment, given that rates are at two-decade high right now). But refinancing just because you see a lower rate isn’t necessarily a good option, advises Andrews. “The main thing you don’t want to do is extend it out solely for the purpose of getting a lower rate — unless you like the advantage of getting a lower payment and you plan to do something with that extra money,” he says.

Refinancing to get cash

A cash-out refinance lets you trade in some of your home equity (usually up to 80 percent of it) in exchange for cash. It replaces your existing mortgage with a new, bigger loan and then gives you the difference in a lump-sum payment. Homeowners commonly use cash-out refinances to pay for things like home renovations, college tuition or debt consolidation.

If you don’t have any major upcoming expenses like these, then a cash-out refi might not be the best choice, because you may end up with a higher interest rate and an extended repayment schedule.

If you do need money for home-related expenses, you could consider a home equity loan or home equity line of credit (HELOC) instead of refinancing. That way, you’ll still be leveraging your ownership stake, but you’ll get to keep your original mortgage with its low rate and amortization schedule.

Evaluate the full cost to refinance

Unfortunately, refinancing your mortgage isn’t free. The fees involved in taking out a new loan can wind up costing you thousands of dollars, usually 2 percent to as much as 5 percent of the mortgage amount. You may not have to pay all that money up front, but even if the costs are rolled into your new loan, you’ll have to shell out for them eventually, plus interest.

“We see scenarios over and over again where, on the surface, you think ‘wow this is too good to be true,’” says Kurt Johnson, a retail lending sales manager at Liberty Bank in Middletown, Connecticut. “These deals, so to speak, are front-loaded with costs either by way of high origination fees or points.”

He also notes that if you’ve refinanced a few times before, you may have a bigger balance on your loan than you realize, and refinancing again with costs rolled in will grow the amount you owe.

“Proceed carefully and always get a loan estimate and make sure that you understand it,” he says. “And if you don’t understand it, it never hurts to engage another party to help you understand it.”

Find your breakeven point

Not sure whether you should pay off your mortgage or refinance? Looking at the numbers behind your loan is a great place to start.

“What you want to do is look at what you can save per month and how much it’s going to cost you and what your breakeven period is,” Andrews says. (Bankrate’s refinance break-even calculator can help with that.)

The breakeven period is how long it will take you to pay off the costs of closing on a new mortgage and start realizing the savings from a lower rate and lower monthly payments. Andrews says for most people, it’s only worthwhile to refinance if your breakeven period is two years or less.

Keeping the breakeven period in mind is crucial to figuring out if it’s worth refinancing. To help simplify that calculation, Johnson says he usually recommends maintaining your repayment period when refinancing. For example, if you have 10 years left on your mortgage, should you refinance?

“If a person has 10 years left, I’d try to encourage them to refinance into a 10-year mortgage, not a 15- 20– or 30-” year loan, he says. “Once you factor closing costs into the equation, the breakeven sometimes isn’t even there.”

When refinancing will cost you more in the long-run, it’s only worth it if you need the budget flexibility that lower monthly payments can help you achieve. Otherwise, saddling yourself for decades more of mortgage payments may not be beneficial.

Shop around to find the best refinance offer

If you decide that refinancing is the right choice, take the time to explore your options and look for the best refinance rates. “The biggest thing, it’s so easy to shop around, you definitely should and you also want to be comfortable and trust whoever it is you end up working with,” Johnson says. “The best way is to check with a mortgage professional,” Andrews adds. “If you’ve gotten a mortgage recently and you can lower your interest rate by 0.75 or 1 percent, then it’s usually worth it.”

Bottom line on refinancing a nearly paid-off mortgage

So, is it worth it to refinance a mortgage if you’ve almost paid it off? Before you start the process, it’s important to figure out what you’re hoping to achieve by getting a new loan. Locking in a lower monthly payment or swapping your equity for cash can make the prospect attractive, but that doesn’t mean a refi makes sense. You’ll need to consider how much securing a new loan will cost, and if you’ll ever get that money back in savings.

It’s really a question of crunching the numbers and comparing the costs over time — and determining if there’s enough of it remaining on the mortgage to make the expense and hassle of refinancing worthwhile. It probably would take a fairly dramatic drop in interest rates: something that’s a couple of percentage points lower than your current rate, at least. And even then, the closer you are to the finish line, the less advantageous a new mortgage would be.

Every person’s situation is unique, so if you’re considering a refinance, you should do your research, put pencil to paper, and make sure you understand if it’s really the best option for you. Don’t let the lure of a lower interest rate take your eyes off the prize: saving money on your mortgage costs even as you move towards owning your home free and clear.