When is a good time to refinance your home?

Refinancing makes sense when it reduces payments, improves your loan terms or aligns with your financial goals. It’s important to ensure you’ll stay in your home long enough to recoup the closing costs through these savings, which means reaching the break-even point.

Is refinancing worth it if rates are still high?

Yes, but it depends on your individual situation. Refinancing can still be worthwhile if your financial situation has improved, especially if your credit or equity has increased. It can also be beneficial if you’re switching from a less stable loan type, like an adjustable-rate mortgage (ARM) to a fixed-rate loan that offers more predictability.

How much lower should the rate be to justify refinancing?

A common rule of thumb is a rate drop of 1%, but it’s more insightful to conduct a break-even analysis. This involves comparing the money saved on monthly payments to the costs of refinancing to determine how long it will take to recover those costs, giving you a clearer understanding of the potential benefits.

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When to refinance in a high-rate market

High interest rates can make refinancing seem like a bad move—but that’s not always the case. In some situations, when to refinance your home depends on more than just market rates. Refinancing may still help you lower costs, improve loan terms or meet other financial goals. This guide outlines when to refinance a mortgage so you can evaluate your break-even point and other key factors before making a move.

When does it make sense to refinance a mortgage?

When to refinance a house depends on your personal situation, not just market rates. Refinancing in a high-rate environment can still be a wise choice if:

Your credit score has significantly improved.
You've built enough equity to remove private mortgage insurance (PMI).
You're switching from an adjustable-rate mortgage to a fixed rate.
You want to shorten your loan term or responsibly tap into equity.

Even in a high-rate market, refinancing could still lower your costs or help you reach your financial goals—if the timing is right.

In essence, the focus should be on enhancing your overall financial position rather than simply pursuing the lowest rate.

Understanding interest rates

When the Federal Reserve changes its benchmark federal funds rate, it doesn’t directly set mortgage rates—but it still influences them. Adjustable-rate mortgages (ARMs) and home equity lines of credit (HELOCs) often respond quickly because they track short-term rates. Fixed-rate mortgages follow longer-term trends, often linked to the 10-year Treasury yield, which shifts based on investor expectations for Fed policy and inflation.

Factors that impact when you should refinance

By understanding the key factors that affect the benefits of refinancing, you can make a confident decision about when to refinance home loan agreements.

Interest rates vs. your current rate

Compare your current mortgage rate with today’s averages. Even a reduction of 0.5% to 1% can lead to major long-term savings.

Credit score

If your credit score has improved since you took out your original mortgage, you may now qualify for better rates and terms.

Debt-to-income (DTI) ratio

Lenders consider your DTI when reviewing refinance applications. A lower DTI may give you access to better loan options.

Home equity

If you’ve built 20% or more in equity, you could eliminate PMI and lower your monthly payments.

Loan term remaining

If you plan to stay in your home long enough to reach the break-even point, which is when monthly savings surpass closing costs, refinancing can make sense. If you plan to move soon, it may not be worth it.

Did you know that dropping your mortgage rate by just 1% could save you tens of thousands of dollars over the life of your loan?

How to know if refinancing makes financial sense

A simple way to evaluate refinancing is by calculating your break-even point: the time it takes for your savings to offset closing costs.

Example Break-Even Calculation

Current payment: $2,000/month
New payment: $1,850/month
Monthly savings: $150
Closing costs: $4,500

Break-even: $4,500 ÷ $150 = 30 months (2.5 years)

What it means: If you plan to stay in your home longer than 2.5 years, refinancing could save you money. Otherwise, it might not justify the upfront cost.

Use our Mortgage Refinance Calculator to input your numbers and determine when you’ll break even—and how much you could save over the life of your loan.

When to refinance a house—and when to wait

A quick look to help you decide

When Refinancing Could Help	When Not to Refinance
Switching from an ARM to a fixed rate	Planning to sell or move soon
Shortening your loan term	Low equity or poor credit
Consolidating debt via cash-out refi	Break-even point is too far off
Removing PMI after building equity	High fees outweigh benefits

Refinancing in a high-rate market FAQs

Refinancing makes sense when it reduces payments, improves your loan terms or aligns with your financial goals. It’s important to ensure you’ll stay in your home long enough to recoup the closing costs through these savings, which means reaching the break-even point.
Yes, but it depends on your individual situation. Refinancing can still be worthwhile if your financial situation has improved, especially if your credit or equity has increased. It can also be beneficial if you’re switching from a less stable loan type, like an adjustable-rate mortgage (ARM) to a fixed-rate loan that offers more predictability.
A common rule of thumb is a rate drop of 1%, but it’s more insightful to conduct a break-even analysis. This involves comparing the money saved on monthly payments to the costs of refinancing to determine how long it will take to recover those costs, giving you a clearer understanding of the potential benefits.

Still unsure if refinancing is right for you?Let’s talk through it together.