Rates fell 1% and my neighbor refinanced the same week — $180/month saved, $4,500 in closing costs, break-even in 25 months. She is staying 10 years: easy win. Her brother refinanced with 18 months left in town: paid $4,000 to save $1,800. Same decision, opposite answers. Should I refinance my mortgage comes down to one division problem plus three gotchas. Here is the complete method.
Part of the mortgage calculator guide. Run your numbers in the refinance calculator; price the new loan in the mortgage calculator.
For informational purposes only — not financial advice. Estimates may vary; consult a qualified financial advisor for decisions. See /terms.
The break-even rule (the only math that matters)
Break-even months = closing costs ÷ monthly savings. $4,500 ÷ $180 = 25 months. Stay past month 25: refinance wins, every month after is profit. Move or sell before: it loses. The “1% rule” (refinance when rates drop 1%+) is just a heuristic for when this division usually works on typical balances — always run your own numbers, since $150,000 loans and $600,000 loans break even at very different rate drops.
| Scenario ($300k balance) | Costs | Saving/mo | Break-even | Verdict if staying 5 yrs |
|---|---|---|---|---|
| 7% → 6% | $4,500 | ~$200 | ~23 mo | Win (~$7,500 net) |
| 6.5% → 6% | $4,000 | ~$95 | ~42 mo | Win (~$1,700 net) |
| 6% → 5.75% | $4,000 | ~$48 | ~83 mo | Lose |
Rates and examples as of Sept 2026, illustrative only — not a lender offer. Excludes taxes, insurance, PMI, HOA, fees and ARM resets.
Three gotchas that flip the answer
- Term reset: refinancing year-8 of a 30-year into a fresh 30-year restarts amortization — early payments are interest-heavy again. Compare remaining-term refinance (22-year) or keep overpaying per overpayment guide.
- Cash-out confusion: rate-and-term refinance (same balance, cheaper rate) vs cash-out (bigger balance, cash today). Cash-out at a lower rate can still cost more lifetime interest — separate decisions, separate math.
- PMI reset: if appreciation pushed you past 20% equity, refinance can drop PMI — often worth more than the rate cut itself. Get the appraisal math first.
Rate shopping without tanking your score
Comparison is mandatory — same-day spreads of 0.25%+ between lenders are routine, worth tens of thousands over the loan. And safe: multiple mortgage hard pulls within ~14 days count as one inquiry for scoring models. So compress shopping into a single week: Monday applications, Wednesday estimates, Friday decision. What to compare line by line: APR (not note rate), lender fees vs third-party fees, points vs credits, and lock period length. A 0.125% lower rate with $3,000 extra fees loses to the plainer offer inside 5 years — run both through break-even before falling for the headline rate. Never pay upfront “application” or “lock” fees to non-lender brokers shopping your file around.
Refinance checklist (in order)
- Credit clean, DTI under 36%, 6+ months reserves — best tiers go to best files.
- Three lender estimates on the same day (rates move daily); compare APR and closing line by line.
- Break-even vs your honest stay horizon — job, schools, life plans included.
- Lock the rate in writing; shopping without locks wastes the comparison.
For informational purposes only — not financial advice. Estimates may vary; consult a qualified financial advisor for decisions. See /terms.