Sofia Reyes
Personal Finance Editor
Should You Refinance Your Mortgage? The Break-Even Math in 2026
Refinancing makes sense in specific situations — and wastes money in others. Here's the calculation that matters
I refinanced in 2022 at 5.5%. In 2024 rates dropped to 6.2%. I thought I should refi. My broker showed me the break-even analysis and I decided not to.
Mortgage refinancing replaces your current loan with a new one — potentially lowering your rate, changing your term, or accessing equity. Whether it makes financial sense depends on the rate difference, closing costs, and how long you plan to stay in the home. The break-even period (closing costs ÷ monthly savings) determines whether refinancing is worth it.
Refinancing makes sense in specific situations — and wastes money in others. Here's the calculation that matters
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What We Found
I thought I should refi when rates dipped. My broker showed me the break-even math and I decided not to. Here's how the calculation works.
How It Works
How do I calculate whether refinancing makes sense?
Break-even analysis: divide total closing costs by your monthly payment savings. If closing costs are $6,000 and you save $200/month, you break even in 30 months. If you plan to stay in the home longer than the break-even period, refinancing saves money. If you'll move before then, you lose money on the refi.
By the Numbers
Frequently Asked Questions
How much lower does my rate need to be for refinancing to make sense?
The old rule of thumb (refinance if you can drop 1%+) doesn't account for closing costs, remaining loan term, or how long you'll stay. The break-even calculation is more accurate. A 0.5% rate drop on a $400,000 loan saves roughly $125/month — recoverable in 48 months at $6,000 closing costs.
What are typical closing costs for a mortgage refinance?
Typically 2–5% of the loan amount. On a $300,000 mortgage, expect $6,000–$15,000 in closing costs. Components: origination fee (0.5–1%), appraisal ($300–$700), title search and insurance ($700–$1,500), recording fees (varies by county). No-closing-cost refis roll these costs into the rate or loan balance.
Does refinancing affect my credit score?
Yes, temporarily. A new mortgage application triggers a hard inquiry (~5 point impact) and a new account shortens average account age. Multiple mortgage applications within a 14–45 day window (varies by scoring model) count as one inquiry. The impact is temporary and usually offsets within 6–12 months of on-time payments.
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