The Break-Even Analysis
On a $400,000 loan, here's what refinancing at 5.5% looks like compared to today's market rate of 6.51%:
| Metric | Current Rate (6.51%) | Refinance at 5.5% | Difference |
|---|---|---|---|
| Monthly Payment (P&I) | $2,531 | $2,271 | $260/mo savings |
| Annual Savings | — | — | $3,117/yr saved |
| Typical Closing Costs | $3,000 – $6,000 | Break-even: ~15 months | |
When Does 5.5% Make Sense?
A rate of 5.5% is below the current market average of 6.51%. If you have an existing mortgage above this rate, refinancing could make sense — especially if you plan to stay in the home long enough to recover closing costs.
The standard rule of thumb: refinancing makes sense if you can recoup closing costs within 2-3 years. At these savings, your break-even is approximately 15 months.
What Else Affects Your Refinance Decision
How long you'll stay: If you're moving in 2 years, closing costs may not be recoverable even at a better rate.
Your current equity: Less than 20% equity typically means PMI, which affects the real cost of refinancing.
Credit score changes: If your score improved since your original loan, you may qualify for better pricing regardless of the rate environment.
Lender overlays: Published rates are best-case. Your actual rate depends on your full profile and the lender's internal requirements.
Not financial advice. These calculations assume a $400,000 loan balance for illustration. Your actual break-even depends on your loan balance, closing costs, rate offered, and how long you plan to stay in the home. Consult a licensed mortgage professional.