What rate drop makes refinancing worth it?
The old '1% rule' is outdated. What matters is break-even: if closing costs are recovered within 24 months and you plan to stay longer than that, even a 0.5% drop can be worth it on a large balance.
Compare your current mortgage against a new rate to see monthly savings, total interest saved, and exactly how many months it takes to recover closing costs.
Monthly saving = Old payment − New payment. Break-even months = Closing costs ÷ Monthly saving. Lifetime saving = (Old remaining interest) − (New total interest + closing costs).
A $320,000 balance at 7.5% with 27 years left costs $2,258/month. Refinancing to 6.25% over 30 years drops it to $1,970 — a $288/month saving. With $6,400 in closing costs, break-even is 6,400 ÷ 288 ≈ 22 months.
The old '1% rule' is outdated. What matters is break-even: if closing costs are recovered within 24 months and you plan to stay longer than that, even a 0.5% drop can be worth it on a large balance.
2–5% of the loan amount: lender origination (0–1%), appraisal ($400–$700), title and escrow ($700–$2,000), recording, and prepaid taxes/insurance into escrow.
By default yes — a new 30-year term resets the amortization clock, so early payments go mostly to interest again. Ask for a custom term matching your remaining years to keep the lifetime saving.
The lender covers the costs in exchange for a rate roughly 0.25–0.5% higher, or rolls them into the balance. It makes sense if you expect to move or refinance again within about 5 years.
A recast keeps your existing rate and re-amortizes after a lump-sum principal payment, costing $150–$500 with no credit check. Choose a recast when your current rate is already below market and you just want a lower payment.
Temporarily, by roughly 5–15 points from the hard inquiry and the new account age. Rate shopping within a 45-day window counts as a single inquiry.