The 30-Second Verdict
If refinancing drops your rate by at least 1 percentage point AND you’ll stay in the home past the break-even point, refinance. Smaller rate drop, or moving soon? Keep it — closing costs will eat the savings.
Why 1%?
Refinancing isn’t free — closing costs run 2–5% of the loan. On a $300,000 mortgage that’s $6,000–$15,000. A quarter-point shave saves maybe $50/month: a decade to break even. A full point saves roughly $180/month on that same loan: break-even in about 3 years. The 1% rule keeps you from paying thousands to save hundreds.
The Break-Even Math
Closing costs ÷ monthly savings = months to break even. Staying longer than that number? You profit. Selling or moving before it? You lose. Run this before you sign anything.
The Bottom Line
Rate drop of 1%+ and staying past break-even → refinance. Anything else → keep your mortgage and your closing costs.
The Refinance Break-Even Calculator
Assumes 30-year fixed-rate mortgages for both the current and new loan.
Educational estimate only. Based on YOUR current rate, new rate, remaining balance, closing costs, and years you plan to stay you enter. Break-even months = Closing costs ÷ monthly savings. Assumes 30-year fixed-rate for both current and new loan. Ignores taxes, PMI, escrow, fees, adjustable rates. Not mortgage advice.
Disclaimer: Educational only, not financial advice. Talk to a qualified financial advisor about your situation.
Frequently Asked Questions
What is the 1% rule?
If refinancing drops your rate by at least 1 percentage point and you’ll stay in the home past the break-even point, refinance. A smaller rate drop, or moving soon? Keep it — closing costs will eat the savings.
How do I calculate the break-even point?
Divide closing costs by monthly savings — that gives you months to break even. Staying longer than that number? You profit. Selling or moving before it? You lose.
Why isn’t a smaller rate drop worth it?
Closing costs run 2–5% of the loan — on a $300,000 mortgage that’s $6,000–$15,000. A quarter-point shave saves maybe $50/month: a decade to break even.
When should I ignore this rule and talk to a professional?
The calculator assumes 30-year fixed-rate mortgages and ignores taxes, PMI, escrow, and fees — talk to a qualified financial advisor about your situation.
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