Should I Refinance Now or Wait for Lower Rates? How to Run the Numbers
"I'll refinance when rates drop a little more."
I hear this every week. It sounds smart. Sometimes it is. But waiting isn't free, and most homeowners never put a number on what it costs.
Here's how to figure out whether waiting actually pays off.
What is the cost of waiting to refinance?
The cost of waiting is the monthly savings you give up while you hold out for a better rate. If refinancing today saves you $655 a month and you wait 12 months, waiting costs you $7,854. That money doesn't come back.
The question is whether the lower rate you're hoping for saves enough extra to earn that back, and how long that takes.
How long does it take for waiting to pay off?
Here's a real example from the calculator. A homeowner has a $735,000 refinance available today at a rate just over a point below their current loan.
Refinance today: saves about $655 a month.
Wait 12 months for a rate half a point lower: saves about $891 a month, once it happens.
The extra savings from waiting: about $236 a month.
What waiting cost: $7,854 in missed savings.
$7,854 divided by $236 is about 33 months. Add the 12 months of waiting, and waiting doesn't pull ahead until about 3 years and 9 months from today.
And that's only if rates actually drop half a point in 12 months. Nobody can promise that.
What if rates don't drop?
Then waiting just cost you money. You paid the higher rate the whole time and you're back where you started, minus the savings you could have had.
Rates can also go up while you wait. That's the risk nobody puts in the spreadsheet.
Can I refinance now and refinance again later?
Yes, and for a lot of homeowners it's the best answer. You start saving now. If rates fall far enough later to cover a second round of closing costs, you refinance again.
The calculator shows this as a third line on the chart. In the example above, closing costs of $6,500 are paid back in about 10 months of savings. After that, everything is money in your pocket, whether or not rates ever drop.
I set a target rate for every refinance client and watch it for them. When the math works, I reach out. You don't have to watch rates yourself.
How do I know if refinancing is worth it at all?
Start with the break-even. Divide your closing costs by your monthly savings. That's how many months until the refinance pays for itself.
If you plan to stay in the home well past that point, refinancing usually makes sense. If you might sell in a year, it might not.
Also check the loan term. Restarting a 30-year loan lowers your payment, but it can add years of interest. You can always keep paying your old payment amount on the new loan to stay on schedule.
What do I need to use the calculator?
Five numbers:
Your original loan amount, term and rate
How many payments you've made
The refinance loan amount and today's rate
The rate you're hoping for, and how long you think it'll take
Your estimated closing costs
If you don't have a current quote, I can get you one with a soft credit pull. It takes about five minutes and doesn't touch your score.
Try it with your numbers
Open the free Refinance Now or Wait Calculator. Free, no sign-up, works on your phone.
If you're taking cash out or rolling in other debt, see the Debt Consolidation Calculator too.
Frequently asked questions
Should I refinance now or wait for rates to drop? Compare the monthly savings you'd give up by waiting with the extra savings a lower rate would bring. If waiting takes years to break even, refinancing now often wins.
What is the cost of waiting to refinance? It's the monthly savings you miss while waiting. Saving $655 a month and waiting 12 months costs $7,854.
Can I refinance twice? Yes. Many homeowners refinance now to start saving, then refinance again if rates drop enough to cover new closing costs.
How do I calculate my refinance break-even? Divide your closing costs by your monthly savings. $6,500 in costs and $655 in savings is about a 10-month break-even.
Mike Belfor is a Branch Manager and Loan Originator with American Pacific Mortgage (NMLS 1850), with about 24 years in mortgage lending. MLO NMLS 264700, DRE 01878769.
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Should I Refinance Now or Wait? Free Cost of Waiting Calculator
Waiting for lower rates has a price. See how long a lower rate takes to make up for the savings you miss. Free refinance calculator.
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