During my career reporting on mortgage rates and the housing market, I’ve watched homeowners carry specific ideas about when they should refinance and when they shouldn’t. There aren’t any hard-and-fast rules, though — every family’s situation is different, and the real estate market and its “rules” are constantly changing.
For a long time, a popular idea was that you should refinance only if your new mortgage rate would be at least 1 percentage point lower than your current one. This way, your savings interest would be more likely to offset the closing costs you pay up front when refinancing.
However, an analysis by real estate technology company Redfin discovered that now is a good time for many to refinance, and the 1% rule isn’t necessarily relevant in the current market.
This calculation was based on a 6.08% rate, which was the year-to-date average at the time of publication.
Redfin found that 1 in 5 homeowners could benefit from refinancing
Most homeowners don’t need to lock in a rate that’s 1% lower than what they have now. Lowering their rate by 0.5% could very well be enough to save money. Redfin detected that one in five households with a home loan could save money by refinancing into a lower-rate mortgage in today’s market.
Why is 0.5% the new goal? Because in Q3 2025, more mortgage borrowers had a rate over 6% than under 3%, marking the first instance in five years. National average mortgage rates are hovering around 6% right now, according to Freddie Mac, which gives those homeowners the opportunity to refinance into a lower rate.
“Say someone bought a $500,000 home in October 2023, when rates hit a 20-year high of 7.8%. Their monthly mortgage payment would be about $3,700, assuming a 20% down payment,” Redfin wrote.
“Refinancing to a 6% rate would bring the payment down to about $3,200, saving $500 per month. If the homeowner pays $10,000 in refinance fees, it would take less than two years — 20 months — for the monthly savings to pay for the fees.”
If the homeowner in this example stayed in the house for more than 20 months, they would recoup their up-front costs. After the 20-month mark, that $500 per month would be pure savings.
“The last time this many homeowners were in the money for a refinance was the end of 2021, when mortgage rates averaged 3.08%, and roughly two in five (39.4%) would have benefited from refinancing,” Redfin wrote.
Homeowners are losing out on savings by not refinancing
So, it’s the best time in years to refinance your mortgage. However, Redfin found that roughly one in 10 (9.1%) of eligible homeowners are actually refinancing to save money.
“That’s the lowest ‘take-up rate’ for homeowners who could benefit from refinancing since the beginning of 2020,” the report stated.
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So far in Q1 2026, homeowners have refinanced around $223 billion of mortgage loans. There was potential for Americans to refinance $2.24 trillion in mortgages if the 90.9% who were eligible to save had refinanced.
The analysis listed three main reasons homeowners haven’t refinanced yet in 2026: They aren’t aware that they could save by refinancing right now, they’re holding out for lower mortgage rates, or they’re worried about closing costs.
I have been reporting on daily mortgage rates for years, and I can’t count the number of times mortgage rates have increased when the general public expected them to decrease. If a homeowner stands to save money by refinancing now, waiting simply in hopes of lower rates might not be the best idea. It’s a risky game to play, and there’s zero guarantee that rates will actually go down soon.
And I won’t deny that closing costs can be expensive — but that’s why it’s crucial to shop for lenders with the lowest fees, consider no-closing-cost refinances, or opt for the less-expensive streamline refinance, if you qualify. Also, remember that your monthly savings will help offset what you pay on closing day.
How to know when it makes sense to refinance your mortgage
Redfin’s report makes it clear that more people could benefit from refinancing, but that still doesn’t mean refinancing is the right move for every homeowner. Here are some ways to determine whether refinancing is a good move for you right now.
- Look at your current mortgage interest rate. Is it over 6%? Then you might qualify for a lower rate now. Remember, Redfin stated that lowering your rate by just 0.50% could be enough to benefit financially.
- Estimate your closing costs.According to Freddie Mac, refinance closing costs typically total 3% to 6% of your mortgage principal. So, if you refinance into a $500,000 loan, expect to pay $15,000 to $30,000 in closing costs.
- Talk to your current mortgage lender. Get a better idea of what your new rate could be and how much you’ll pay in closing costs, and consider shopping with a few more to find the best deal.
- Calculate your “break-even point.” This is the amount of time it takes for your monthly savings to cancel out the money you spent on closing costs. If you spend $15,000 on closing costs and your new rate would save you $400 per month, your break-even point would be 50 months, or just over four years.
- Consider how long you expect to stay in the house. In the above example, refinancing probably wouldn’t be financially worth it if you plan to move in a year or two. But if you want to stay for more than four years, then you’ll save money in the long run.
Related: Redfin, Zillow reveal major mortgage rate, housing market change
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