Is refinancing worth it if rates drop 0.5%?
Sometimes, but often not. A half-point drop can help, yet the savings may be too small to recover closing costs unless you keep the loan long enough. Your break-even month is the key.
If you want a fast answer, start with the refinance calculator, check today's rates, and compare your result against the break-even explanation page.
Half‑point reality check: A 0.5% drop often helps only if fees are low or you plan to stay long. If break-even is 3+ years away, it’s usually worth waiting or negotiating costs.
Why 0.5% sounds bigger than it is
- A smaller rate drop can still lead to modest monthly savings.
- Closing costs can take years to recover at lower savings levels.
- If the term resets to 30 years, total interest can rise even with a lower payment.
When 0.5% is enough
- You plan to keep the loan well past break-even.
- Closing costs are low or offset by lender credits.
- You’re removing PMI or switching from ARM to fixed.
- You’re shortening the term and can afford the payment.
When it usually isn’t
- You expect to sell or refinance again within a couple years.
- Closing costs are high and savings are modest.
- The new loan resets the term and increases total interest.
- You’re focused only on payment, not total cost.
Your fastest test: break-even months
Break-even is simple: net closing costs divided by monthly savings. If you won’t keep the loan beyond that month, it usually isn’t worth it. For a deeper walk-through, see refinance break-even explained or compare to the framework in should you refinance or wait.
Worked example
Example: 0.5% drop with moderate costs
Loan balance of $320,000 at 6.5% refinanced to 6.0% with $3,600 in net closing costs. The payment drops by about $100 per month. Break even is around 36 months. If you plan to stay five years, it can make sense. If you plan to move in two years, it likely won’t.
Common mistake: Focusing on the 0.5% drop and ignoring how long it takes to recoup closing costs.
Frequently asked questions
Does 0.5% always save money?
Not always. The savings may be too small to offset closing costs if you won’t keep the loan long enough.
How long do I need to stay to break even?
Stay longer than the break-even month. That number comes from net closing costs divided by monthly savings.
Do lender credits change the math?
Yes. Credits lower upfront costs but usually come with a higher rate. Compare total cost and break-even for both options.
Does refinancing reset the loan term?
It can. Resetting to a new 30-year term can reduce payments but raise total interest.
Should I wait for a bigger rate drop?
If the math doesn’t work today, waiting can be reasonable. Use rate alerts to monitor changes and act when the numbers improve.
Ready to run your numbers?
Compare a 0.5% drop against your own balance and costs to see where break-even lands.