Last week, a client called us practically out of breath. She had locked in at 7.25% back in October 2023 because, at the time, that was the best she could get. Now she was seeing rates a full point lower and wanted to know: "Is it finally time?"
Her question is the same one thousands of homeowners are asking right now. And the honest answer is: it depends on your math.
Let us walk through exactly how to figure that out.
What Is Refinancing?
Refinancing means replacing your current mortgage with a new one, usually to get a lower interest rate, change your loan term, or pull cash from your home equity. You go through a process similar to your original mortgage, including an application, appraisal, underwriting, and closing.
The goal is simple: save money over time or restructure your loan to better fit your life right now.
Why 2026 Is a Big Year for Refinancing
Refinance activity is picking up fast. According to Fannie Mae, refinances are projected to make up roughly 35% of all mortgage originations in 2026, a significant jump from prior years. That shift is driven by homeowners who locked in at 7% or higher during 2022 and 2023 now finding opportunities to lower their monthly payments.
If you bought or refinanced when rates were between 7% and 8%, even a half-point reduction can translate to real dollars each month. On a $400,000 loan, dropping from 7.25% to 6.25% saves roughly $280 per month. That is $3,360 a year.
But savings only matter if they outweigh the costs. That is where the break-even formula comes in.
How to Calculate Your Refinance Break-Even Point
This is the single most important calculation in any refinance decision. Here is how to do it step by step.
1. Get your estimated closing costs. Refinance closing costs typically run between 2% and 5% of the loan amount. On a $350,000 loan, expect to pay somewhere between $7,000 and $17,500. You can get a detailed estimate by contacting a lender or using our refinance calculator.
2. Calculate your monthly savings. Compare your current monthly principal and interest payment to what the new payment would be. If you are currently paying $2,730 on a 7.25% rate and the new payment at 6.25% would be $2,450, your monthly savings is $280.
3. Divide closing costs by monthly savings. This gives you the break-even point in months. Using our example: $10,000 in closing costs divided by $280 in monthly savings equals roughly 36 months, or three years.
4. Compare that to how long you plan to stay in the home. If you expect to live there for five or more years, a 36-month break-even looks great. If you are thinking about moving in two years, the math does not work.
5. Factor in loan term changes. If you are resetting from year 5 of a 30-year loan back to a new 30-year loan, you are extending your payoff timeline. Consider whether a 20-year or 15-year term makes more sense for your goals.
Pro tip: our refinance calculator does all of this math for you in about 30 seconds.
Rate-and-Term vs. Cash-Out Refinance: What Is the Difference?
Not all refinances are the same, and picking the right type matters.
If your main goal is lowering your monthly payment or paying off your loan faster, rate-and-term is the move. If you need to consolidate high-interest debt or fund a major home improvement, cash-out might make sense, but the numbers need to justify it. Learn more about cash-out options on our loans page.
When Refinancing Makes the Most Sense in 2026
Here are the scenarios where refinancing is most likely to pay off:
You locked in above 7% in 2022 or 2023. Even a 0.75% to 1% drop can save you hundreds monthly. With rates trending lower than where they were two years ago, you may be in a strong position.
Your credit score has improved significantly. If your score jumped from the mid-600s to the mid-700s since you first bought, you could qualify for meaningfully better rates. According to the Federal Reserve, borrowers with scores above 740 consistently receive the most favorable mortgage pricing.
You want to drop PMI. If your home has appreciated and you now have 20% equity, refinancing lets you eliminate private mortgage insurance, which can run $100 to $300+ per month depending on your loan size.
You want to switch from an ARM to a fixed rate. If your adjustable-rate mortgage is about to reset higher, locking in a fixed rate now could protect you from future payment increases.
What Closing Costs Should You Expect?
Here is a realistic breakdown on a $350,000 refinance:
- Appraisal fee: $400-$700
- Title search and insurance: $1,000-$2,500
- Origination fee: 0.5%-1% of loan ($1,750-$3,500)
- Recording fees: $100-$250
- Credit report: $30-$50
- Prepaid interest: Varies (covers days between closing and first payment)
- Escrow reserves: 2-6 months of taxes and insurance
Total estimate: $7,000-$14,000 for a $350,000 loan.
Some lenders offer "no-closing-cost" refinances, but the costs are baked into a slightly higher rate. You are not avoiding the costs, you are just paying them differently. At CMS Mortgage, we show you both options so you can decide what actually saves you more over time.
When Refinancing Does Not Make Sense
Refinancing is not always the right call. Skip it if:
- Your break-even point is longer than the time you plan to stay in the home
- You are deep into your loan (15+ years in) and would restart the amortization clock
- The rate difference is less than 0.5% and your loan balance is under $200,000
- You recently took on new debt that would hurt your debt-to-income ratio
Sometimes the smartest financial move is the one you do not make.
How CMS Mortgage Helps You Get the Best Refinance Deal
As a top 50 national mortgage brokerage with access to 50+ lenders, CMS Mortgage does not just offer you one rate and call it a day. We shop your refinance across dozens of lenders to find the combination of rate, closing costs, and terms that fits your actual situation.
Over 20+ years, we have helped thousands of homeowners figure out whether refinancing makes sense, and when it does, we make sure they get the best deal available.
Frequently Asked Questions
Is it worth refinancing for 1 percent?
On most loans, yes. A 1% rate reduction on a $350,000 mortgage saves roughly $230-$250 per month, which means you could break even on closing costs in about 3-4 years. If you plan to stay in the home longer than that, the savings add up significantly over the life of the loan.
How much does it cost to refinance in 2026?
Refinance closing costs typically range from 2% to 5% of the loan amount. For a $350,000 mortgage, that means roughly $7,000 to $17,500 depending on your lender, location, and the specific fees involved. Some lenders offer no-closing-cost options with a slightly higher rate.
Can I refinance if I just bought my home?
Most conventional lenders require you to wait at least six months after closing before refinancing. FHA streamline refinances require at least 210 days and six monthly payments. The real question is whether the math makes sense that quickly, since you recently paid closing costs on your purchase.
Should I refinance to a 15-year mortgage?
If you can handle the higher monthly payment, a 15-year refinance typically comes with a lower rate and saves you tens of thousands in total interest. On a $350,000 loan, the difference in total interest between a 30-year and 15-year term can exceed $100,000. Run your numbers through our payment calculator to see what fits your budget.
What credit score do I need to refinance?
Most conventional refinances require a minimum credit score of 620, though you will get the best rates at 740 and above. FHA refinances may allow scores as low as 580. According to Freddie Mac, even small improvements in your credit score before applying can result in meaningfully better rate offers.
---
This content is for educational purposes and is not financial advice. Mortgage rates and guidelines change frequently. Contact a licensed loan officer at CMS Mortgage to discuss your specific situation.
Ready to see if the math works for you? Start your refinance analysis here.