When Is It Worth It to Refinance Your Mortgage? | 2025

Is it worth it to refinance right now?

Yes, mortgage refinancing can be worth it right now if current rates allow you to save money both month-to-month and over the long term. Whether rates are rising or falling, even a small drop of 1%, 0.5%, or as little as 0.25% in your interest rate could make refinancing worthwhile, depending on your existing mortgage loan and financial goals.

If you think you could get an even slightly lower rate, check to see if a refinance is worth it based on your new rate and savings.

In this article (Skip to...)

• When refinancing is worth it
• Refinancing for 1%
• Refinancing for 0.5%
• When it’s not worth it
• FAQ

When is it worth it to refinance?

It’s generally worth it to refinance a mortgage if you can lower your costs in some way, whether by getting a lower interest rate, a shorter loan term, or a lower monthly payment.

“Determining whether the total costs to refinance make sense heavily depends on how long you plan to keep the loan,” says Tom Furey, co-founder of Neat Capital.

“Assume your ultimate refinance goal is to save money. If so, you’ll want to determine that your long-term savings exceed the costs to secure the refinance.”

Here are the key times when refinancing is worth it for most homeowners.

• When you can lock in a lower interest rate. Securing a reduced rate can make refinancing well worth it, as it lowers your monthly payments and can save thousands over the life of the loan.
• When you want to reduce your monthly payments. If your goal is to lower your monthly mortgage payment, refinancing into a longer-term loan or a better rate could make it worthwhile.
• When switching to a fixed-rate loan. Converting an adjustable-rate mortgage (ARM) into a fixed-rate mortgage is often worth considering if you want predictable payments and protection from future rate hikes.
• When eliminating mortgage insurance fees. For many homeowners, refinancing to a conventional loan and removing private mortgage insurance (PMI) makes mortgage refinancing worth it, especially with long-term savings in mind.
• When you want to access your home equity. A cash-out refinance can be worth it if you need funds for home improvements, consolidating debt, or other major expenses.
• When shortening your loan term saves you money. Refinancing into a 15-year or another shorter loan term can be worth it for homeowners who want to reduce interest payments over time, even if the monthly payment increases.

To decide if refinancing is truly worth it for you, weigh the upfront costs against the potential savings.

A good rule of thumb is to make sure the benefits, such as reduced interest or monthly payments, outweigh the costs of refinancing within the time you plan to stay in your home.

To decide how much rates need to drop before refinancing is worth it for you, try this refinance calculator.

Is it worth refinancing a mortgage for 1 percent?

Yes, it’s worth refinancing a mortgage for 1 percent if the savings outweigh the costs and align with your financial goals. A one-percentage point reduction can often result in significant savings over time.

For example, dropping your mortgage rate by one percent—from 7.5% to 6.5%—could save you approximately $269 per month on a $400,000 mortgage loan. That’s nearly a 20% reduction in your monthly mortgage payment.

You can use these monthly savings for everyday expenses, build an emergency fund, invest, or make additional payments toward your loan principal to save even more over the life of the loan.

Here’s an example when refinancing is worth it for a 1 percent:

Is refinancing still worth it if you don’t meet the break-even point?

Keep in mind that “breaking even” with your closing costs isn’t the only way to determine if refinancing is worth it. Consider your personal finances, the time you plan to stay in your home, and the potential savings over time.

A homeowner who plans to move or refinance again before the break-even point might opt for either:

Option 1: No-closing-cost refinance

• The lender covers your closing costs, but you take on a slightly higher interest rate.
• This strategy reduces monthly savings but avoids upfront costs and the need to calculate a break-even point.
• This loan is ideal for borrowers planning to keep the loan for just a few years.

Option 2: Rolling closing costs into the loan

• This adds closing costs to your loan balance, increasing the amount owed and total interest paid.
• This strategy spreads the cost of refinancing over the loan’s term, making it easier to manage for long-term borrowers.
• This option is often more affordable than a no-closing-cost refinance for those staying in the home longer.

“Most borrowers choose the latter— lumping the closing costs into the loan so they can receive the lowest possible rate. But that’s not always the best option unless you plan to stay in your home for at least several years,” says Furey.

Is it worth it to refinance for 0.5 percent?

There are two common scenarios when it could be worth it to refinance for half a percentage point reduction.

1. If you’ll keep the new home loan long enough to recoup closing costs (breaking even)
2. OR, if you can get the mortgage lender to cover your closing costs with a no-cost refinance loan (“Double check that costs aren’t actually being rolled into the loan,” cautions Jon Meyer, The Mortgage Reports loan expert)

1. Refinancing for 0.5 percent: Break-even method

Let’s crunch the numbers to see if refinancing is worth it with a 0.5% rate drop. Remember, the less your mortgage rate drops, the less you save each month. So it takes longer to recoup your closing costs and start seeing “real” benefits.

• For example, dropping your rate by 0.5%—from 7% to 6.50%—could save you about $133 per month on a $400,000 mortgage loan.

That’s a decent monthly savings, but it will likely take you about five years to break even with closing costs. This makes refinancing worth it only if you plan to keep the new loan long-term.

Now let’s look at how the numbers compare if you can drop your mortgage interest rate by 0.5% using a no-closing-cost refinance.

2. Refinancing for 0.5 percent: no-closing-cost method

Say your current mortgage rate is 7.25%, and your lender offers you their best rate of 6.5%.

• Instead of accepting the ultra-low mortgage rate, you ask the lender to pay your closing costs. The lender agrees, and in exchange, you accept a higher rate than the initial offer: 6.75%
• This arrangement lowers your interest rate by 0.5%, saving you about $134 per month on a $400,000 loan. Since there are no closing costs, there’s no break-even point to worry about—your savings start immediately.

“A thing to note here: While this isn’t true of all mortgage loan officers, most tend to quote ‘no cost refis’ as often as possible. So if you can save 0.5% in this case, it’s a great deal,” adds Meyer.

For homeowners with the means to cover closing costs upfront, taking the lower rate of 6.5% will save more money both in your monthly budget and over the life of the loan.

However, for those without savings to cover upfront costs, a no-cost refinance is often worth it, as it eliminates the initial cost barrier while still providing monthly savings.

When is refinancing not worth it?

Refinancing is not worth it if the financial downsides outweigh the benefits. Since refinancing resets your loan term, you’ll spread the remaining loan principal and interest repayment over a new 30-year or 15-year loan term.

Specifically, mortgage refinancing might not be worth it if:

• You’ve already paid off a significant portion of your current loan.
• It results in higher overall interest costs over time.
• Your credit score isn’t high enough to qualify for a lower rate.

1. You have had your current mortgage for a long time

If you’ve been paying your original mortgage for over 10 years, refinancing may not be worth it, especially if you restart a 30-year loan term. Extending your loan means paying interest for additional years, which can increase the overall cost.

However, to make refinancing worthwhile, consider a shorter loan term, like a 15-year loan.

• For instance, if your original loan amount was $500,000 at 7% and you’ve made 11 years of payments, you’d have around $418,855 remaining.
• Refinancing into a 15-year fixed-rate loan at 7.25% would increase your monthly payment from $3,327 to $3,824. While your payment would increase, you could still save time and interest compared to restarting with a 30-year mortgage loan.

Refinancing into a shorter term is only worth it if you can comfortably afford the higher monthly mortgage payment. If you’re close to paying off your existing mortgage, refinancing may not make financial sense.

2. Refinancing would increase your total interest cost

If your new rate is not low enough to generate long-term savings, you could end up paying more interest over the full loan term.

Look at an example:

Both refinance options reduce monthly payments, but only the first one—with a 1% rate drop—provides long-term savings of $71,776. The second refinance, with just a 0.25% rate reduction, increases the total interest cost by $18,224 over the loan term.

Refinancing is only worth it if it fits your goals. With most homeowners refinancing or selling within just 3.6 years (according to Freddie Mac), those immediate monthly savings could make all the difference.

3. Your credit score is too low to refinance or get a good rate

Refinancing may not be worth it if you have a low credit score and can’t qualify for a competitive mortgage interest rate. Mortgage lenders tend to give the best mortgage refinance rates to applicants who have the strongest credit profiles.

You won’t need perfect credit to get a favorable refinance rate. In fact, it’s possible to get an FHA refinance with a credit score as low as 580. But many lenders require scores of 620 or higher.

Instead of refinancing, consider paying down high-interest debt like credit cards to improve your score. Alternatively, if you already have an FHA loan, USDA loan, or VA loan, a Streamline Refinance could offer a new mortgage without a credit check.

FAQ: When is it worth to refinance?

How much do mortgage rates need to drop to refinance?

What’s the bottom line? It’s a good time to refinance when your savings are greater than the cost.

“If refinance rates are declining, it may pay to wait to maximize the difference between your current rate and the new rate,” Ailion adds. “But when lower refinance rates begin to rise, it’s probably a good idea to pull the trigger.”

Today’s mortgage rates are still relatively low, but they may not be around forever. It’s a good time to consider locking in a low refinance rate to maximize your savings. Experiment with a mortgage calculator to see when the numbers make sense for your financial situation. Or simply begin getting quotes from multiple lenders below.