There are a lot of individual factors that determine that answer

February 25, 2026

• Mortgage rates remain higher than pandemic-era lows, but theyve eased from recent peaks, creating selective refinancing opportunities.
  

• Homeowners with rates at least 0.75% to 1% above todays averages may benefit but closing costs can erase savings if they plan to move soon.
  

• Cash-out refinancing can provide liquidity, but it increases long-term interest costs and resets loan terms.
  

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As mortgage rates settle into a new normal, many homeowners are wondering whether 2026 could finally be the right time to refinance. The answer depends less on national headlines and more on individual math.

After climbing sharply in recent years, mortgage rates have stabilized compared with their highs by one account falling below 6% though they remain well above the rock-bottom levels seen in 2020 and 2021. That means refinancing is no longer a universal money-saving move but for some borrowers, it can still make financial sense.

When refinancing may make sense

The traditional rule of thumb has been that refinancing is worth considering if you can lower your interest rate by at least onepercentage point. In todays environment, some lenders say a reduction of 0.75 percentage points can still be worthwhile, depending on loan size and how long you plan to stay in the home.

For example, a homeowner with a $350,000 loan who reduces their rate by 1% could save hundreds per month. Over time, that adds up but only if they stay in the house long enough to recover closing costs, which typically range from 2% to 5% of the loan amount.

Borrowers who originally purchased when rates were elevated particularly in 2023 or 2024 may be best positioned to benefit if rates dip modestly.

Monthly payment vs. long-term cost

One common mistake homeowners make is focusing solely on lowering their monthly payment.

Refinancing into a new 30-year loan resets the clock. Even at a slightly lower rate, extending repayment can increase the total interest paid over the life of the loan. Homeowners who have already paid down several years of their mortgage may want to consider a 15- or 20-year refinance instead, or choose a new term that matches their remaining payoff timeline.

The key calculation is the break-even point how many months it will take for monthly savings to exceed upfront refinancing costs.

Cash-out refinancing: Proceed carefully

For homeowners who have built significant equity, a cash-out refinance can unlock funds for home improvements, debt consolidation,or other expenses. But this strategy carries risk.

By increasing the loan balance, borrowers may trade lower-interest mortgage debt for higher long-term costs. And if home values soften, they could reduce their equity cushion.

Financial advisers generally caution against using home equity to fund discretionary spending. However, using it strategically such as consolidating high-interest credit card debt or financing value-adding renovations can make sense in certain circumstances.

Credit score and home equity matter

Lenders reserve the best refinance rates for borrowers with strong credit typically 700 or higher and at least 20% equity in their home. Those with lower credit scores may see smaller rate improvements or higher fees.

Homeowners should also consider whether theyll need a new appraisal and whether their homes value has changed significantly.

Experts consistently recommend gathering at least three quotes. Fees, lender credits, and rate-lock policies can vary widely. Even a fraction of a percentage point difference can translate into thousands of dollars over time.

Online lenders, credit unions, and traditional banks may all price loans differently, and some offer streamlined refinance programs that reduce paperwork for borrowers with government-backed loans.

Now can be a good time to refinance but only for the right borrower.

Homeowners who secured mortgages at higher recent rates, plan to remain in their homes for several years, and can meaningfully reduce their rate may benefit. Those who locked in ultra-low pandemic-era loans are unlikely to find better terms in the current environment.

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