Refinancing your mortgage can put money back in your pocket, but timing and approach matter more than you might think. With rates hovering around 6.9% as of late July 2025 and most economists expecting them to stay in the 6.5% range through the rest of the year, many homeowners are wondering if refinancing makes sense. Here’s how to figure out if it’s worth it for your situation.

When Refinancing Makes Financial Sense

The old rule of thumb was to refinance when you could drop your rate by a full percentage point, but these days that’s not realistic for most homeowners. With current refinance rates around 6.9%, homeowners who locked in those pandemic-era rates of 3% to 4% simply can’t find better deals right now.

However, refinancing still makes sense in specific situations:

You bought during the high-rate period: If you purchased your home in 2022 or 2023 when rates hit 8%, today’s rates could represent meaningful savings. Even a half-point drop can be worth pursuing if you can avoid closing costs through a no-cost refinance.

You want to change loan terms: Switching from a 30-year to 15-year mortgage can save tens of thousands in interest, even if your rate stays the same. Your monthly payment will be higher, but you’ll own your home outright much sooner.

You need to drop mortgage insurance: If your home value has increased enough to give you 20% equity, refinancing to a conventional loan can eliminate costly PMI payments that might be eating up $200+ monthly.

You want access to cash: Cash-out refinancing lets you tap your home equity at mortgage rates (currently around 7.1%), which beat credit card rates by a wide margin.

Calculate Your Break-Even Point

Before you commit to refinancing, you need to know when you’ll actually start saving money. The average cost of a mortgage refinance is $5,000, according to a 2022 report from Freddie Mac, though costs typically range from 2% to 6% of your loan amount.

Here’s the math: Divide your total closing costs by your monthly savings. If refinancing costs $6,000 and saves you $200 monthly, your break-even point is 30 months. If you plan to stay in your home longer than that, you’ll come out ahead.

Quick Break-Even Example:

• Current payment: $2,200/month at 7%

• New payment: $1,950/month at 6.5%

• Monthly savings: $250

• Closing costs: $7,500

• Break-even: 30 months

Experts generally recommend staying in your home for at least five years after refinancing to make the transaction costs worthwhile.

Types of Refinancing to Consider

Rate-and-Term Refinance: This is the classic refinance where you get a new rate, new term, or both while keeping your loan balance the same. It’s ideal when rates have dropped or you want to change your payoff timeline.

Cash-Out Refinance: You borrow more than you owe and pocket the difference. Cash-out refinance rates run about one-quarter to one-half percentage point higher than regular refinance rates because lenders consider them riskier. You can typically borrow up to 80% of your home’s value with conventional loans.

No-Closing-Cost Refinance: Your lender covers closing costs in exchange for a slightly higher interest rate. This works well if you don’t have cash upfront or might refinance again soon.

Streamline Refinance: Available for FHA, VA, and USDA borrowers, these programs require less documentation and can often be processed faster with reduced fees.

Getting the Best Deal

Shopping around remains your best strategy for landing a competitive rate. Get quotes from at least three lenders and compare not just interest rates but APRs, which include fees and give you a more accurate cost comparison.

Your credit score plays a huge role in the rate you’ll qualify for. If your score has improved since your original mortgage, you might qualify for better terms. Most cash-out refinances require a debt-to-income ratio at or below 50%, so paying down other debts before applying can help.

Don’t overlook your current lender. While you’re not obligated to stay with them, they might offer incentives like reduced closing costs to keep your business. It’s worth asking what they can do before you shop elsewhere.

Current Market Reality Check

According to current data from the Federal Housing Finance Agency, about 83% of homeowners still have mortgage rates below 6%, with the average interest rate on existing mortgages at 4.3%. This is far lower than today’s prevailing rates available to new homebuyers. The percentage of homeowners with favorable rates has been gradually declining as people are forced to move due to life circumstances and new buyers enter the market at higher rates.

Looking ahead, 84% of Americans who bought a home in the past year plan on refinancing to a lower rate in the future, according to a September 2024 U.S. News survey. Most of them (53%) plan on waiting until rates drop below 5%, which experts say might not happen within the next three years based on current forecasts. This suggests there’s significant pent-up demand that could drive refinancing activity when rates do eventually decline.

Alternative Options

If traditional refinancing doesn’t pencil out, consider a home equity line of credit (HELOC) or home equity loan to access cash without disturbing your low-rate mortgage. As rates remain elevated, refinancing has fallen out of favor and homeowners are turning to home equity lines of credit and home equity loans instead.

For homeowners who need lower payments, extending your current loan term through modification might be cheaper than refinancing, though not all lenders offer this option.

The bottom line: refinancing isn’t automatically smart just because rates exist. Do the math on your specific situation, factor in how long you plan to stay put, and remember that the best refinance is often the one you don’t need to do twice.