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

Is it worth it to refinance for 0.25%, 0.50% or 1% reduction in rate?

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.

As rates potentially creep down in 2024, 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.

Monthly Savings by Rate Reduction*

Current loan

0.25%

0.50%

1.00%

$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.

Breakeven Months by Rate Reduction**

Current loan

0.25%

0.50%

1.00%

$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 in 2024. You may have some very good opportunities 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 spent 11 years in the mortgage industry and now leverages that real-world knowledge to give consumers reliable, actionable advice. Tim has been featured in national publications such as Time, U.S. News, MSN, The Mortgage Reports, My Mortgage Insider, and more.

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