When refinancing actually saves money
The 0.75% rule of thumb, and why break-even math beats headlines.
5 min read · Updated 2026-07-04
The break-even calculation
Take total refinance closing costs and divide by monthly payment savings. That is how many months it takes to break even. If you'll stay in the home longer than the break-even, refinancing is a net win. If not, you're paying closing costs to save on interest you won't be around to enjoy.
The 0.75% rule of thumb
A rate drop of at least 0.75 percentage points on a 30-year loan usually clears typical closing costs within 3 years. Smaller drops can still be worth it on very large balances but almost never on modest ones.
Cash-out refinances
Refinancing to pull equity out as cash raises your loan balance and often extends your term — meaning you may pay more total interest even at a lower rate. Only use cash-out for high-return uses (killing much-higher-rate debt, essential home repairs), not lifestyle spending.
Key takeaways
- Break-even in months = closing costs ÷ monthly savings.
- 0.75%+ rate drop is a reasonable rule of thumb.
- Cash-out refis lower rates but often raise total interest paid.
Run the numbers
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Educational content only. Not individualized financial, tax, or legal advice.