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Mortgage Rates Are Dropping: Should You Refinance in 2025?

refinance mort


Mortgage rates have dropped to their lowest point in the past year, with a 30-year fixed mortgage hovering around 6.39% as of mid-September (according to a recent Reuters article).


That might have you wondering: Should I refinance my mortgage in 2025?


The truth is, refinancing can save you thousands of dollars—but it isn’t always the right move. In this guide, we’ll cover when refinancing makes sense, how to calculate your savings with a refinance break-even point, common mortgage refinancing mistakes to avoid, and a quick example so you can see the math in action.


When Does Refinancing Make Sense for Your Mortgage?


You might want to consider refinancing your mortgage if:


  • Rates have dropped by at least 0.5% to 1.0%. This is the most common rule of thumb. If you can lower your rate enough and plan to stay in your home long enough to break even on costs, refinancing could be worth it.

  • You want to move from an ARM (adjustable-rate mortgage) to a fixed-rate mortgage. Refinancing now may let you lock in a lower, predictable payment instead of gambling on future adjustments.

  • You want to shorten your loan term. Refinancing from a 30-year loan into a 15-year mortgage can help you become debt-free faster and save tens of thousands in interest. Just make sure the higher payment won’t stretch your budget too thin.


Refinance With an Improved Credit Score


If your credit score has improved since you first bought your home, you may qualify for a lower refinance rate. For example, moving from a “good” to an “excellent” credit score could unlock better offers and long-term savings.


Need help boosting your credit? Download our free guide: Credit Score Made Simple Related reading: Your Credit Score Matters - Here’s Why


Quick Example: $250,000 Loan


Let’s look at an example to see if refinancing is worth it.


  • Current loan balance: $250,000

  • Current interest rate: 7.5%

  • Remaining term: 25 years

Your monthly payment (principal + interest) is about $1,847.


If you refinance to 6.5% for 25 years:


  • New monthly payment: about $1,689

  • Monthly savings: $158

  • Lifetime savings (25 years): $47,400


Now let’s check the costs:


  • Closing costs (3%): ~$7,500

  • Appraisal + other fees: ~$500–$1,000

  • Total refinance costs: about $8,000


Break-even point: $8,000 ÷ $158 ≈ 51 months (just over 4 years).


In other words => Refinancing is worth it if you plan to stay in your home for 5+ years. If you may sell sooner, it may not make sense.


Refinance Savings Guide: Run the Numbers Yourself


Use this step-by-step guide to see if refinancing makes financial sense for you. Plug in your numbers as you go:


1. Loan Details

Current balance: $________

Current rate: ________%

New rate: ________%

Years remaining: ________


2. Estimate New Payment

Current payment: $_______

New payment: $_______

Monthly savings = $_______


3. Lifetime Savings Monthly savings × 12 × years left = $_______


4. Refinance Costs

Closing costs (2–5%): $_______

Appraisal + other fees: $_______

Total = $_______


5. Break-Even Point Refinance costs ÷ monthly savings = ______ months

If you plan to stay in your home longer than the number of months you calculated as your break-even point, then refinancing may be worth it. Otherwise, it might not make financial sense or worth your time and effort to go through the refinancing process. 


Mortgage Refinancing Mistakes to Avoid


  1. Only looking at the rate. A lower rate isn’t the whole story—always consider total costs and loan term.

  2. Automatically resetting to a new 30-year loan. This lowers your monthly payment but may increase total interest over time. Compare terms before deciding.

  3. Not shopping around. Rates and fees vary. Get at least three refinance quotes before choosing a lender.

  4. Forgetting about your credit score. Even a small improvement can make you eligible for better refinancing offers.

  5. Ignoring the break-even point. If you won’t stay in the home long enough to cover closing costs, refinancing isn’t worth it.


Final Thoughts: Is Refinancing Worth It in 2025?


Refinancing isn’t one-size-fits-all. But with mortgage rates dropping, refinancing could be a smart move if:


✅ Your new interest rate is at least 0.5–1% lower 

✅ Your credit score has improved 

✅ You’ll stay in your home long enough to reach the break-even point


Run the numbers, compare lenders, and make sure refinancing supports your financial goals—not just lower monthly payments.


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Frequently Asked Questions About Refinancing


1. Is refinancing worth it if rates drop 1%?In many cases, yes. A 1% drop in your mortgage rate can lead to meaningful monthly savings and thousands in lifetime interest savings.

2. How long does it take to break even on refinancing? It usually takes between 2–5 years, depending on closing costs and monthly savings. If you’ll move before then, refinancing may not make sense.

3. What credit score do I need to refinance my mortgage? Most lenders require at least 620, but you’ll get the best refinance rates with a score of 740+.

4. Does refinancing hurt your credit score? Your credit score may dip temporarily due to a hard inquiry, but it usually recovers quickly. Over time, consistent on-time payments can improve your score.


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