The old “1% rule” isn’t reliable anymore

For years, conventional wisdom said refinance when rates drop a full percentage point below your current rate. That’s a rough shortcut at best — the real answer depends on your loan balance, your closing costs, and how long you plan to stay in the home, not a fixed rate threshold.

The math that actually answers the question: breakeven

Refinancing has upfront costs — appraisal, title, lender fees, and often prepaid escrow — typically 2–5% of the loan amount. Divide those total closing costs by your monthly payment savings, and you get your breakeven point in months. If refinancing saves $150 a month and costs $4,500 to close, breakeven is 30 months — if you plan to stay in the home longer than that, the refinance pays for itself; if you’re likely to sell or refinance again sooner, it may not.

Reasons to refinance beyond just a lower rate

A rate-and-term refinance isn’t the only reason to refinance. Common others: eliminating mortgage insurance once you’ve built enough equity, moving from an adjustable-rate mortgage to a fixed rate ahead of a scheduled adjustment, shortening your term from a 30-year to a 15-year to cut total interest paid, or a cash-out refinance to fund a renovation, pay off higher-interest debt, or access equity for another purpose.

What to actually check before applying

Your current rate and remaining balance, an honest estimate of closing costs for a refinance (they vary by lender and loan size), and a realistic answer to how long you’ll stay in the property. Those three numbers, run through the breakeven math above, answer the “should I refinance” question far more reliably than watching the news for rate headlines.