Decision Guide · Reviewed 6 September 2026
Refinance if rate drop > 0.5% AND you'll stay 7+ years; otherwise keep current mortgage.
Refinancing costs $2K–$5K in closing costs. Break-even is ~3–7 years. If you're moving in 2 years, refinance only for 0.75%+ rate drop. If staying 10+ years, refinance at 0.5% drop (savings compound).
Break-even calculator (example)
Current: $400K mortgage at 6.5%, 25 years left = $2,470/month
Refinance to: $400K at 5.75%, 25 years + $3,500 closing costs
| Month | Current Mortgage | Refinanced Mortgage | Savings/Month | Cumulative Savings (minus closing) |
|---|---|---|---|---|
| 1–12 | $2,470 × 12 | $2,360 × 12 | $110/month | $1,320 − $3,500 = −$2,180 |
| 1–36 (3 years) | $29,640 | $28,320 | $1,320 cumulative | $1,320 − $3,500 = −$2,180 (not broken even) |
| 1–60 (5 years) | $49,400 | $47,200 | $2,200 cumulative | $2,200 − $3,500 = −$1,300 (still not) |
| 1–84 (7 years) | $69,160 | $66,080 | $3,080 cumulative | $3,080 − $3,500 = −$420 (nearly there) |
| 1–120 (10 years) | $98,800 | $94,400 | $4,400 cumulative | $4,400 − $3,500 = +$900 (profitable!) |
Decision framework
- Staying < 3 years: Don't refinance (won't recoup costs)
- Staying 3–7 years: Refinance only if rate drop > 0.75%
- Staying 7+ years: Refinance at 0.5% drop (long-term savings compound)
- Rate drop > 1%: Almost always refinance
Recommendation: Use break-even calculator (many lenders provide this). If break-even < your expected stay-length, refinance. Otherwise, keep current mortgage.