Entry № 20 · logged Oct 8, 2026Free, no sign-upMoney · Home
Should I refinance my mortgage?
The rate is the headline; two rules do the deciding. Rule one is the size of the drop. Rule two is the calendar. Get both right and refinancing pays you; get either wrong and you have paid thousands for the privilege of a lower number.
Rule one: the rate drop has to be real
On a $300,000 balance, each percentage point of rate is worth roughly $191 a month in principal-and-interest savings. The worked table below is computed on the same 25-years-left loan at $6,000 in closing costs — the numbers come from the docket, not from marketing.
| Rate drop | Monthly savings | Break-even | 10-yr net savings |
|---|---|---|---|
| −0.5 pp | $97 | 62 months | $5,596 |
| −1.0 pp | $191 | 31 months | $16,962 |
| −1.5 pp | $284 | 21 months | $28,088 |
| −2.0 pp | $375 | 16 months | $38,965 |
Below half a point, the math rarely clears the costs — treat a quarter-point drop as noise. At a full point, the savings are usually decisive, and every extra quarter-point after that is pure gain.
Rule two: the break-even must fall inside your staying horizon
Closing costs are the entry fee. Divide them by the monthly savings and you get the break-even month: $6,000 ÷ $191 = 31 months. If you will still own the home in month 31, every month after that is profit. If you plan to sell next spring, you have paid $6,000 to save $2,292 — a net loss of roughly $3,700.
The three times to walk away
- You will move before the break-even. The calendar wins every argument; sell early and the refinance was a donation to your lender.
- The drop is tiny. At a quarter-point on $300,000 you save about $48 a month and need over ten years to earn back $6,000. Skip it.
- The lower payment comes from stretching the term. Restarting a 30-year clock at 6.5% on $300,000 after five years paid costs $74,947 more in total interest than keeping the remaining 25-year term. The payment is smaller because the loan is longer — check the interest line, not the payment line.
Sources: break-even formula (closing costs ÷ monthly savings) is standard; the 3–6% closing-cost range is Freddie Mac’s estimate and the ~$5,000 average is NerdWallet’s. Rate environment: 30-year trackers put the fall 2026 average near 7% (7.03% Freddie Mac, week of Sep 24, 2026; 7.28% on Oct 1, 2026 per industry trackers) — so borrowers holding rates above roughly 7.8% are the ones this tool is for.
Common questions Form RF-20
What is the 1% rule for refinancing?
The 1% rule says refinancing is worth a look when the new rate is at least one percentage point below your current rate. On $300,000 that saves about $191 a month -- enough that a 31-month break-even is easy to justify if you are staying.
How long do you have to stay for a refinance to be worth it?
At least past the break-even month: closing costs divided by monthly savings. For $6,000 in costs and $191 a month saved, that is 31 months. Move sooner and the refinance loses money.
Is refinancing worth it if rates only dropped a little?
Usually not. A quarter-point drop on $300,000 saves about $48 a month -- over ten years to recover $6,000 in closing costs. Wait for a bigger drop or a no-closing-cost offer.