The decision rests on a payback analysis: closing costs (often 2–3% of the loan) divided by monthly savings gives the break-even point in months. If the homeowner expects to stay longer, refinancing pays off; if not, the costs outweigh the benefit.
Cash-out refinancing replaces the existing loan with a larger one and pays the difference in cash to the borrower — useful for renovations or debt consolidation, but increases LTV and resets the amortisation clock.
Example
A homeowner refinances a CHF 500k mortgage from 3% to 2% with CHF 8,000 in costs; monthly savings of about CHF 400 pay back the costs in 20 months, after which the savings are pure benefit.