Should you refinance your mortgage? Do the break-even properly.

A refinance is a trade. You pay several thousand dollars today, and in return you get a lower rate, a different term, or both. Whether the trade is good depends on three numbers: what it costs, how much it saves each month, and how long you will keep the new loan. Most advice stops at the first two. The third decides the answer.

This guide works through the decision on a real loan at a real rate. On October 29, 2026, Freddie Mac's weekly survey put the average 30-year fixed rate at 7.24% and the 15-year at 6.60% (Freddie Mac PMMS via FRED). That is not a refinancing boom. The average was 5.98% as recently as February 26, 2026, and a loan taken at the average rate of almost any week since 2023 already carries a rate at or below today's. So the honest starting point is that, for most homeowners, there is nothing to do this week. The exceptions are worth finding, and the refinance calculator finds them in a minute.

Who should look at this now

Since the start of 2023, Freddie Mac's weekly average has been above this week's 7.24% in only thirteen weeks: nine in the autumn of 2023 (September 28 to November 22), peaking at 7.79% on October 26, and four this October. The highest weekly reading in 2024 was 7.22%, and in 2025 it was 7.04%. Averages hide a wide spread, though: plenty of borrowers paid well above the average because of their credit score, a small down payment, or the loan type.

Worth running the numbers: anyone whose rate is roughly half a point or more above this week's average, who expects to stay in the home for at least several more years, and whose credit or equity has improved since they borrowed. That last point matters because the average is an average; a borrower who has paid down the loan and raised their score may be quoted below it.

Can skip it for now: anyone who borrowed in 2024, 2025 or the first nine months of 2026 at or near the average of the day, anyone likely to sell within three or four years, and anyone who would need to roll the costs into a loan where the rate gap is small. For those households, the useful step is to note the rate that would make a refinance pay (the calculator gives it) and wait for it.

The simple break-even, and why it flatters

The usual rule is to divide the closing costs by the monthly saving. If the refinance costs $7,300 and cuts your payment by $200, you are even in about 37 months.

Take a borrower who took a 30-year loan at the 2023 high of 7.79% and has made three years of payments, leaving a $340,000 balance with 27 years to go. Their principal and interest payment is $2,516. A new 30-year loan at this week's 7.24% average would cost $2,317, a saving of $199 a month. For costs, use $7,300, close to the $7,329 median total loan costs on refinances in 2023 found by the CFPB in its analysis of HMDA data. That figure covers lender fees, required services such as the appraisal and title work, and discount points where they were paid; two-thirds of 2023 refinances (67.7%) paid points, with a median of about $3,902.

$7,300 divided by $199 is 36.6 months. The rule says the refinance pays from month 37. It doesn't.

The problem is that the new loan restarts the clock. Early payments on a 30-year mortgage are mostly interest, so for years the new loan pays down principal more slowly than the old one, which was already three years along. Part of the lower payment is not a saving at all: it is a slower payoff, and you still owe the difference. The fair comparison counts, at each month, everything that differs between the two paths: the payments made, any costs paid in cash, and the balance you would still owe if you sold the house or paid off the loan that month.

Counting the balance, this refinance pulls ahead in month 51, more than a year later than the simple rule says. After seven years it is about $4,000 ahead: real money, but well short of the $16,700 that seven years of $199 savings seems to promise. If this household sells in year four, the refinance has cost them money.

The term is the hidden lever

Refinancing a loan with 27 years left into a new 30-year loan adds three years of payments. Kept to the end, the new loan carries about $494,000 of interest against $475,000 left on the old one: roughly $19,000 more, despite the lower rate. The lower rate only wins on lifetime cost if the term doesn't stretch.

Choose a term that keeps the original payoff date and the picture changes. A 27-year loan at the same 7.24% costs $2,392 a month, a smaller saving of $124, but the full break-even comes sooner, in month 47, and the refinance is about $5,900 ahead after seven years. Over the remaining life of the loan it saves about $40,000 of interest. Not every lender writes odd terms. If yours won't, a 30-year loan with extra principal paid each month gets much of the same effect, as long as the note carries no prepayment penalty.

The shorter the term, the larger the effect. At this week's 15-year average of 6.60%, the payment rises to $2,980, $464 a month more than today. But the rate is lower and the principal goes down far faster, so after seven years the borrower is about $37,500 ahead, and the loan's lifetime interest falls from $475,000 to about $196,000. That is a budget question more than a rate question: it only works if the higher payment is comfortable for years, not just this year.

Rolling the costs in moves the finish line

Many refinances are sold as "no cash at closing", which usually means the costs are added to the new balance. That is convenient, and it is not free: you pay 7.24% on the $7,300 for as long as you have the loan.

In our example, rolling the costs in lifts the new payment to $2,367, cutting the monthly saving to $150. The full break-even moves from month 51 to month 78, six and a half years out, and after seven years the refinance is ahead by only about $450. A "no-closing-cost" loan, where the lender pays the costs in exchange for a higher rate, works the same way by a different route. Either can still make sense, but only for someone who plans to stay well beyond the break-even.

What rate would make it worth it?

Turn the question around. Given your balance, costs and how long you'll keep the loan, what is the highest new rate at which the refinance at least breaks even? For our 2023 borrower:

• Staying seven years, any rate at or below about 7.40% breaks even, and every step below that adds to the saving. At 6.79%, a full point below the old rate, the saving is $302 a month, the full break-even arrives in month 27, and the refinance is about $14,800 ahead after seven years.
• Staying three years, the rate would need to be about 7.04% or lower.

The old rule of thumb, refinance when rates fall by a full point, is a rough proxy for this calculation. A half-point drop can pay for a household that stays put; a full point can fail for one that moves soon or rolls large costs into a big new loan. The break-even rate is the number to write down. It's the one to watch for in the weekly survey, and the calculator shows it as the third figure.

The same rules, in the order you'll meet them

1. Get at least three Loan Estimates on the same day. A lender must send a Loan Estimate within three business days of your application (CFPB). The standard form makes the rate, the points and the lender's charges comparable line by line. Rates change daily, so quotes taken a week apart don't compare. Our APR guide shows how to read them.
2. Price the points separately. Points buy a lower rate for cash today. Put the quote with points and the quote without into the calculator as two scenarios and see which pulls ahead by your horizon.
3. Know your exit. For a refinance of your principal residence with a new lender, federal rules generally give you until midnight of the third business day after closing to cancel. A refinance with your current lender is exempt, except for any new money borrowed beyond the old balance and the refinance costs (12 CFR 1026.23).
4. Don't count on the tax deduction. Points paid to refinance are generally deducted over the life of the loan, not in the year paid, and only if you itemize (IRS Tax Topic 504). If you use part of the money to substantially improve your main home, part of the points may be deductible in the year you pay them; when a loan ends early, the remaining points are generally deductible that year, unless you refinance with the same lender (IRS Publication 936).
5. Treat cash-out as a separate decision. Taking cash out turns a rate decision into a borrowing decision secured by your home. Run the rate question first, then ask whether the cash is worth borrowing at the new rate for 30 years.

Where to get quotes

Start with your current servicer and at least two others: a bank or credit union you already use, and an online lender. If you'd rather not fill in several applications, a marketplace such as LendingTree passes one application to several lenders, at the price of calls and emails from all of them. Our mortgage rates page lists lenders with who each one suits and who should skip it, alongside this week's Freddie Mac average. We are not paid for any of these links today; if that changes, the links will be marked and the advice won't.

Questions people ask

When does it make sense to refinance a mortgage?

When the full saving, counting closing costs and the balance you would still owe, turns positive before you expect to sell or refinance again. On a $340,000 balance at 7.79% with 27 years left, a new 30-year loan at 7.24% with $7,300 in costs pulls ahead in month 51 and is about $4,000 ahead after seven years. If you expect to move within four years, it doesn't pay.

Is the 1% rule for refinancing right?

It is a rough guide, not a rule. A one-point drop on a large balance with costs paid in cash usually pays back within a few years. A half-point drop can also pay if you'll keep the loan long enough, and a full point can fail to pay if you move soon or roll large costs into the loan.

Should I roll closing costs into the new loan?

It keeps cash in your pocket but you pay interest on the costs for the life of the loan, so the break-even comes later. In our example, rolling $7,300 into the loan moves the break-even from month 51 to month 78, and the seven-year advantage shrinks from about $4,000 to about $450.

Are refinance points tax deductible?

Generally only over the life of the loan, not in the year you pay them, and only if you itemize, according to IRS Publication 936 and Tax Topic 504. If you use part of the money to substantially improve your main home, part of the points may be deductible in the year paid. When the loan ends early, the remaining balance of points is generally deductible that year, unless you refinance with the same lender.

Can I back out of a refinance after closing?

Usually, if it's your principal residence and you refinance with a new lender: federal rules give you until midnight of the third business day after closing to cancel. A refinance with your current lender is exempt, except for any new money borrowed beyond the old balance and the refinance costs (12 CFR 1026.23).

This guide is educational and is not personalized financial, tax or legal advice. Figures are national averages and medians as of the dates given; a lender's quote for your loan will differ. Calculations assume fixed-rate loans, monthly compounding and no taxes, insurance or escrow, and are in today's dollars without discounting.