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Is it Worth Refinancing For a .25%, .50% or 1% Lower Rate?

Man in kitchen deciding whether to refinance
The Bottom Line

How much you can save depends on your loan balance, refi closing costs, and rate reduction potential.

A simple rule of thumb is the larger your loan balance, the less your rate has to drop to make a refinance worth it.

For instance, someone with a $750,000 loan saves over $125 per month by dropping their rate just 0.25%

Someone with a $200,000 would have to drop their rate by 1% to save the same amount.

If rates start falling, you could have many opportunities to drop your rate by 0.25%, 0.50%, or even 1.0%.

So, as in many financial decisions, the answer to whether you should refinance is “it depends.” Here’s what to consider.

Monthly savings

The following table details how much you could save at various loan amounts and rate reductions.

Keep in mind that this is an estimate only and your savings could depend on your original loan amount, current loan amount, whether you include closing costs into the new loan, and how long you’ve had your loan.

Current Loan Balance 0.25% Reduction 0.50% Reduction 1.00% Reduction
$75,000 $13 $25 $50
$100,000 $17 $34 $67
$125,000 $21 $42 $84
$150,000 $26 $51 $101
$175,000 $30 $59 $118
$200,000 $34 $68 $134
$225,000 $38 $76 $151
$250,000 $43 $85 $168
$275,000 $47 $93 $185
$300,000 $51 $102 $201
$325,000 $55 $110 $218
$350,000 $60 $119 $235
$375,000 $64 $127 $252
$400,000 $68 $136 $269
$425,000 $72 $144 $285
$450,000 $77 $153 $302
$475,000 $81 $161 $319
$500,000 $85 $170 $336
$550,000 $94 $187 $369
$600,000 $102 $203 $403
$650,000 $111 $220 $436
$700,000 $119 $237 $470
$750,000 $128 $254 $504
$800,000 $136 $271 $537
$850,000 $145 $288 $571
$900,000 $153 $305 $604
$950,000 $162 $322 $638
$1,000,000 $170 $339 $671
$1,100,000 $187 $373 $739
$1,200,000 $204 $407 $806
$1,300,000 $221 $441 $873
$1,400,000 $239 $475 $940
$1,500,000 $256 $509 $1,007
$1,600,000 $273 $543 $1,074
$1,700,000 $290 $577 $1,141
$1,800,000 $307 $610 $1,209
$1,900,000 $324 $644 $1,276
$2,000,000 $341 $678 $1,343

Breakeven point

Many refinance applicants look at “breakeven point” to determine whether a new loan is worth it. The breakeven point is when cumulative monthly savings match closing costs.

It’s very hard to break even on a small loan amount. There are certain fixed costs that don’t change much: the appraisal, escrow fee, and other costs are similar for a $100,000 loan as they are for a $500,000 loan.

However, it still may be worth refinancing a small loan. Sometimes you can roll your closing costs into the new loan and still have 1) a lower payment and; 2) lifetime interest savings.

Looking at strictly monthly savings versus refinance costs, here are breakeven points in months.

Current Loan Balance 0.25% Reduction 0.50% Reduction 1.00% Reduction
$75,000 548 275 139
$100,000 411 206 104
$125,000 329 165 83
$150,000 274 138 69
$175,000 235 118 60
$200,000 205 103 52
$225,000 183 92 46
$250,000 164 83 42
$275,000 149 75 38
$300,000 137 69 35
$325,000 126 64 32
$350,000 117 59 30
$375,000 125 63 32
$400,000 117 59 30
$425,000 110 56 28
$450,000 104 52 26
$475,000 99 50 25
$500,000 94 47 24
$550,000 85 43 22
$600,000 78 39 20
$650,000 72 36 18
$700,000 67 34 17
$750,000 63 31 16
$800,000 59 29 15
$850,000 55 28 14
$900,000 52 26 13
$950,000 49 25 13
$1,000,000 59 29 15
$1,100,000 53 27 14
$1,200,000 49 25 12
$1,300,000 45 23 11
$1,400,000 42 21 11
$1,500,000 39 20 10
$1,600,000 37 18 9
$1,700,000 35 17 9
$1,800,000 33 16 8
$1,900,000 31 16 8
$2,000,000 29 15 7

Reduce your rate while achieving other goals

The numbers above shouldn’t be your only deciding factors. There are plenty of other reasons to refinance. If you can drop your rate a bit, it’s icing on the cake.

Combine the following goals with your rate reduction:

  • Get cash out for home improvements, debt consolidation, or large one-time costs

  • Pay off a high-rate HELOC

  • Get out of a hard-money loan or other short-term financing

  • Change a 30-year fixed to 15-year to save on lifetime interest

  • Convert a 15-year to 30-year to lower the monthly payment

  • Refinance an adjustable-rate mortgage to a fixed

  • Remove FHA mortgage insurance with a conventional loan

  • Remove PMI from a conventional loan

The list goes on. The point is you might as well accomplish many financial goals at once with a refinance if at all possible.

Watch rates. You may have some very good opportunities in coming months to save money and shore up your finances.




*Assumes current rate of 7.5%.

**All calculations assume $7,000 in closing costs for loans $75k-$350k, $8,000 in closing costs for loans $375k-$950k, $10,000 in closing costs for $1M+. Your closing costs will vary.

About The Author:

Tim Lucas is the editor and Lead Analyst for MortgageResearch.com. Tim spent 11 years in the mortgage industry and now leverages that real-world knowledge to give consumers reliable, actionable advice. He has been featured in national publications such as Time, U.S. News, MSN, The Mortgage Reports, and more.

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