Should You Refinance Your Mortgage in 2026? Here's How to Decide
Refinancing can save thousands — or cost you money if the timing's wrong. Here's the math that actually determines whether it's worth it.
Refinancing typically makes sense when you can lower your rate by at least 0.5-0.75 percentage points and plan to stay in the home past your breakeven point — the number of months it takes monthly savings to exceed closing costs (usually 2-5% of the loan amount).
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The Breakeven Calculation
Breakeven Months = Closing Costs ÷ Monthly Savings. If refinancing costs $6,000 in closing fees and saves you $250/month, your breakeven point is 24 months — you need to stay at least 2 years for refinancing to pay off.
When Refinancing Makes Sense
- Your new rate is at least 0.5-0.75 points lower than your current rate
- You plan to stay in the home past your breakeven point
- You want to switch from an adjustable-rate to a fixed-rate mortgage
- You want to remove PMI after building 20%+ equity
The Term Reset Trap
Be cautious comparing a refinance with a longer term to your current shorter remaining term. Stretching a loan from 27 years remaining to a new 30-year term can show "savings" purely from spreading payments over more months — not because the deal is actually better. Compare apples to apples when possible, or factor in a shorter new term if you've already paid down significant principal.
Refinancing Closing Costs
Expect closing costs of 2-5% of the loan amount, covering appraisal, origination fees, title insurance, and similar costs to your original mortgage closing.
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