Homeowners eager for mortgage rates to fall so they can start refinancing may have to wait longer than expected. A new study by Neighbors Bank reveals that borrowers with loans in the 6.5%-7% range would need rates to drop by at least three-quarters of a percentage point before refinancing produces significant savings.
The cost of refinancing depends on the lender, and it only makes sense if you remain in the home long enough to recoup that expense. For example, if it costs $4,000 to refinance but you save $200 monthly, it takes 20 months to break even. Selling before then would make refinancing a waste.
According to the Neighbors Bank study, even a small drop in mortgage rates isn’t always enough to justify refinancing. Their analysis shows that a homeowner with a 30-year fixed-rate loan at 6.8% and a balance of $386,339 would pay $5,458 in fees to refinance. If rates only fell by 0.25 points, the borrower would still be $2,424 in the red after three years. With a half-point decline, break-even occurs in just over three years, while a 0.75-point drop shortens it to under three years. A full-point decrease, however, could allow the borrower to break even in 20 months and save nearly $4,800 after three years.
“Many assume that any rate drop makes refinancing worthwhile, but the math often says otherwise,” said Jake Vehige, president of mortgage lending at Neighbors Bank. He added that refinancing isn’t just about rates—it’s also about how long you’ll stay in your home, upfront costs, and local housing conditions.
Regional variations make refinancing more or less attractive. Borrowers in high-cost states like New Hampshire gain more five-year savings from refinancing than those in lower-cost states like Louisiana, since bigger loan balances magnify the effect of rate cuts. Likewise, borrowers with 15-year mortgages recoup refinancing costs faster than those with 30-year loans, while conventional loan holders typically save more over time than FHA, VA, or USDA borrowers.
Still, there are reasons beyond monthly savings to consider refinancing—like tapping equity, switching from adjustable- to fixed-rate loans, or lowering payments by extending loan terms. But experts caution that if you’re pursuing refinancing purely for savings, the numbers must add up.
Neighbors Bank sums it up: modest rate improvements demand a multiyear commitment before refinancing truly offsets the cost.
