The 1% Rule — And Why It's Incomplete
The traditional rule says: refinance when your new rate is 1% below your current rate. That's a useful starting point, but it ignores two critical factors: closing costs and how long you'll stay.
The real question is: will my monthly savings pay back the closing costs before I sell or move?
Break-Even Calculator
Break-even formula:
7 Clear Signs It's Time to Refinance
If market rates have fallen 0.75%+ since you closed, run the break-even calculator. Even a 0.5% drop can save $100+/month on a large balance.
If your score was 660 when you bought and is now 750+, you may qualify for a rate 0.5–1.5% lower than your original loan — regardless of where market rates are.
If your 5/1 or 7/1 ARM is approaching its first adjustment and rates are uncertain, locking into a fixed rate gives predictability — even at a slightly higher rate.
Your income has grown and you want to pay off faster. A refi to 15-year locks in a lower rate and accelerates payoff — even if the monthly payment goes up.
If your home value has risen enough that you now have 20%+ equity, a refinance lets you remove PMI (usually $100–300/month) — even if your rate doesn't improve.
A cash-out refinance lets you tap equity at mortgage rates (typically lower than HELOCs or personal loans). Best for home improvements, debt consolidation, or investments — not discretionary spending.
Refinancing into a single name removes an ex-spouse or co-borrower from the loan — a legal requirement in many divorce settlements.
See if current rates beat what you have. No credit impact, no obligation.
Check Refinance Rates — FreeWhen NOT to Refinance
- You're close to paying off your mortgage — most of your payment is already going to principal
- You'll move before hitting the break-even point
- Closing costs would eat up the savings within your planned timeline
- Your credit score has dropped — you may get a worse rate than your current one
- You're extending a 15-year to a 30-year to lower the payment — you'll pay far more interest over time
Refinancing Costs to Expect
Some lenders offer "no-closing-cost" refinances — but they roll the fees into a slightly higher rate. These can make sense if you're not sure how long you'll stay, as you don't have to recover the upfront costs.