Should You Refinance in 2026? Calculator + Framework
Refinance applications surged 40% in January 2026 as rates dropped to 6.3%. The 0.75% rule: refinance if new rate is 0.75%+ lower than current rate. On $400K loan, 7.25% → 6.3% = $200/month savings = $72,000 over 30 years. Break-even: 2.5 years. Learn the calculator + 5 scenarios to decide.
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The 0.75% Rule: Golden Standard for Refinancing
The mortgage industry's rule of thumb: refinance if your new rate is 0.75% or more lower than your current rate. Here's why:
💰 Real Example: $400K Loan
Current Mortgage (7.25%)
- • Monthly: $2,729
- • Total interest: $582,440
- • Remaining: 28 years
After Refinance (6.3%)
- • Monthly: $2,483
- • Total interest: $493,880
- • New term: 30 years
Monthly Savings: $246
Closing costs: $6,000 ÷ $246/month = 24.4 months break-even
After 2 years, you're saving money. Over 30 years: $88,560 total savings
Break-Even Calculator: Step-by-Step
🧮 Calculate Your Break-Even Point
Calculate Monthly Savings
Formula:
Current Payment - New Payment = Monthly Savings
Example:
$2,729 - $2,483 = $246/month savings
Estimate Closing Costs
Typical Costs:
- • Appraisal: $500-$700
- • Title search: $300-$500
- • Origination: $1,500-$3,000
- • Recording: $100-$300
- • Total: $3,000-$6,000
Calculate Break-Even
Formula:
Closing Costs ÷ Monthly Savings = Break-Even (months)
Example:
$6,000 ÷ $246 = 24.4 months (2 years)
Decision Rule
If you plan to stay:
- ✅ Longer than break-even: REFINANCE
- ⚠️ Shorter than break-even: DON'T REFINANCE
- 🤔 Unsure: Use no-closing-cost refinance
🔍 See Your Exact Savings
Get personalized refinance quotes. Compare rates, calculate break-even, see monthly savings.
Calculate Savings →5 Scenarios: Should You Refinance?
✅ Scenario 1: You Got 7%+ Rate in 2023-2024
Current rate: 7.25% | New rate: 6.3% | Difference: 0.95%
Decision: REFINANCE NOW
- ✅ Exceeds 0.75% rule
- ✅ Save $200-$300/month
- ✅ Break-even: 2-3 years
- ✅ Total savings: $70K-$100K
✅ Scenario 2: You Have ARM Adjusting Soon
Current: 5/1 ARM at 6.5% (adjusting in 6 months) | New: 6.3% fixed
Decision: REFINANCE BEFORE ADJUSTMENT
- ✅ Lock in fixed rate before ARM adjusts to 7-8%
- ✅ Avoid payment shock ($300-$500/month increase)
- ✅ Peace of mind with predictable payments
⚠️ Scenario 3: You Got 6.5% Rate in 2025
Current rate: 6.5% | New rate: 6.3% | Difference: 0.2%
Decision: WAIT (Unless No-Closing-Cost)
- ⚠️ Below 0.75% rule
- ⚠️ Save only $50-$80/month
- ⚠️ Break-even: 5-7 years
- ✅ Consider no-closing-cost refi (higher rate, no upfront costs)
❌ Scenario 4: You Got 5% Rate in 2020-2021
Current rate: 5.0% | New rate: 6.3% | Difference: +1.3%
Decision: DON'T REFINANCE
- ❌ New rate is HIGHER than current
- ❌ Payment would increase $200-$300/month
- ❌ Keep your amazing rate
- ✅ Consider cash-out refi only if you need funds urgently
🤔 Scenario 5: You're Selling in 2-3 Years
Current rate: 7.0% | New rate: 6.3% | Break-even: 2.5 years
Decision: MAYBE (Use No-Closing-Cost Refi)
- ⚠️ Standard refi: Won't reach break-even before selling
- ✅ No-closing-cost refi: Save $150/month with no upfront costs
- ✅ Rate: 6.5% (vs 6.3% with costs)
- ✅ Save $3,600-$5,400 before selling
5 Critical Factors to Consider
1. How Long You'll Stay
If break-even is 2.5 years and you're selling in 2 years, you lose money. If staying 5+ years, you save big. Be honest about your plans.
2. Your Credit Score
740+ score = best rates. 680 score = 0.5% higher rate. If your score improved since original loan, you could save even more. Check score before applying.
3. Loan Term Strategy
30-year → 30-year: Lower payment, restart clock. 30-year → 15-year:Higher payment, save $100K+ in interest. Keep same term: Pay off faster.
4. Cash-Out vs Rate-and-Term
Rate-and-term: Just lower rate. Cash-out: Take equity out (rates 0.25-0.5% higher). Only do cash-out if you need funds for high-ROI projects.
5. Fed Rate Predictions
Fed expected to cut rates in 2026, bringing mortgage rates to 5.8-6.2% by Q4. If you can wait 6 months and rates drop to 5.9%, you save more. But if rates stay at 6.3%, you miss out on $1,200-$1,800 savings.
No-Closing-Cost Refinance: When It Makes Sense
🎯 How It Works
Lender pays your closing costs in exchange for a slightly higher rate (0.25-0.5% higher).
Standard Refinance
- • Rate: 6.3%
- • Closing costs: $6,000
- • Monthly: $2,483
- • Break-even: 2.5 years
No-Closing-Cost
- • Rate: 6.5%
- • Closing costs: $0
- • Monthly: $2,528
- • Break-even: Immediate
Best For:
- ✅ Selling in 2-3 years
- ✅ Don't have $6K for closing costs
- ✅ Want to refinance again when rates drop further
- ✅ Current rate is 7%+ (even 6.5% saves $150/month)
6-Step Refinance Checklist
Check Your Credit Score
740+ = best rates. Below 680? Work on improving first.
Calculate Break-Even Point
Use calculator above. If staying longer than break-even, proceed.
Shop 3-5 Lenders
Rates vary 0.25-0.5%. Compare within 45 days (counts as 1 inquiry).
Lock Your Rate
30-60 day lock. If rates drop, ask for float-down option.
Gather Documents
2 years tax returns, 2 months pay stubs, 2 months bank statements.
Close and Celebrate
30-45 days from application. First payment due 45 days after closing.
🎯 Ready to Refinance?
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FAQs
Should I refinance if rates drop 0.5%?
The 0.75% rule is the standard, but 0.5% can work if: (1) You have low closing costs ($3K or less), (2) You're staying 5+ years, or (3) You use no-closing-cost refinance.
How much does refinancing cost?
Typically $3,000-$6,000 (1-1.5% of loan amount). Includes appraisal ($500-$700), origination ($1,500-$3,000), title ($300-$500), and recording ($100-$300).
Can I refinance with bad credit?
Yes, but rates are higher. 620 score = 7.5% rate. 740+ score = 6.3% rate. Improve credit first to save $50K-$100K over loan term.
Should I refinance to a 15-year mortgage?
If you can afford higher payment. 15-year rates are 0.5-0.75% lower than 30-year. Save $100K+ in interest, but payment is 40-50% higher.
Will refinancing hurt my credit score?
Temporarily. Hard inquiry drops score 5-10 points. Multiple inquiries in 45 days count as 1. Score recovers in 3-6 months.