“Many assume that any drop in rates is enough to justify refinancing, but the math tells a different story,” said Jake Vehige, president of mortgage lending at Neighbors Bank. “Unless you’re seeing a significant drop, refinancing may not make sense right away. The break-even point isn’t just about the rate. It’s about how long you plan to stay in your home, how much you pay upfront, and where you live.”
Waiting for smaller rate drops may not pay off
The report also cautioned prospective buyers against delaying purchases in hopes of small rate cuts. Even with a half-point decline, most borrowers would not see savings until the fourth year of their loan, suggesting that today’s higher rates could still be reasonable for those planning to stay in their homes long term.
State-level data showed significant variation in refinancing outcomes. Under a 0.5-point drop, only 10 states delivered positive net savings within three years, including New Hampshire, Colorado, California, and Washington, D.C. High-cost housing markets such as California, Hawaii, and Washington, D.C., offered the largest five-year savings, with higher loan balances amplifying the benefits of lower rates.
Beyond rate reductions, Neighbors Bank noted that refinancing could serve other purposes, such as tapping home equity, lowering monthly payments by extending loan terms, or converting from adjustable-rate to fixed-rate mortgages.
The report also found that shorter loan terms and conventional mortgages tended to reach break-even faster than 30-year loans or government-backed programs. For example, a typical 15-year borrower could save $1,350 within three years on a half-point rate drop, while a 30-year borrower would still face a $184 loss.