Is Refinancing Worth It If My Rate Drops 1%?
Find the break-even month after closing costs.
Start here
If you ever wondered why a lower rate still might not help, you are not alone.
The belief vs the reality
The common belief is a lower rate always saves money. The reality is closing costs mean you need time to break even.
Translate it into monthly numbers
- Convert the rate drop into monthly savings.
- Divide closing costs by monthly savings to find the break-even month.
- Compare that month to how long you plan to stay.
Mental model
Closing costs divided by monthly savings equals break-even month.
Moment of clarity
When you look at it this way, the break-even month is the decision, not the rate.
What to do next
Calculate your break-even month before making a decision.
Related calculators
This is where guessing stops and numbers start.
Key sections in this guide
Calculate the new monthly payment
- Use the new rate and remaining term to estimate the payment.
Translate closing costs into months
- Divide costs by monthly savings to find the break-even point.
Check how long you plan to stay
- If you move before break-even, the refinance does not pay back.
Replace guesses with real numbers
- Test multiple rate scenarios to see the range.
FAQ
What counts as closing costs?
Fees, points, title charges, and any cash due at closing.
How long do I need to stay to break even?
Stay at least as long as the break-even month you calculate.
Does a shorter term change the math?
Yes. Shorter terms can change the payment and the break-even timeline.
What if rates drop again later?
You can compare multiple scenarios to see if waiting changes the break-even month.