The refinance market is off to a roaring start for 2026. While refinance applications slowed to a stall thanks to the annual holiday mortgage market slump, refinance applications rose a remarkable 40% during the week of January 9, then another 20% the following week as mortgage rates decreased. So, if you’re thinking of refinancing your mortgage in early 2026, it could be time to make your move. Here’s what you need to know before you hit “apply.”
We’ll sum it up in a sentence: Mortgage rates are looking pretty good, especially compared to the past few years.
As of January 15, Freddie Mac reported average rates on both 30-year and 15-year fixed-rate loans at a three-year low. The 30-year came in at 6.06% (compared to 7.04% last year) and the 15-year at 5.38% (compared to 6.27% last year). Rates inched up the following week, but just barely, staying near those three-year lows.
While these rates might pale in comparison to the sub-3% rates of the pandemic era, they translate into real savings for those who bought a mere 12 months ago.
For example, say you took out a $400,000 mortgage in January 2025 at the rates in parentheses above. If you refinanced today at last week’s average rates and paid closing costs up front, here’s what your payments would look like.
-
On a 30-year fixed-rate mortgage, your payment would drop from $2,672 to $2,413 — a $259 monthly savings.
-
On a 15-year fixed-rate mortgage, your payment would drop from $3,434 to $3,243 — a $191 monthly savings.
Those savings are nothing to sneeze at, especially when you consider other financial goals. Whether you stash that extra cash in a savings account, use it for an IRA contribution, or build up your emergency fund, you’re coming out ahead.
But could mortgage rates drop even more in 2026? It’s entirely possible. There’s fresh pressure on Fannie Mae and Freddie Mac from the current administration that could lead to modest rate cuts. There are also regularly scheduled Fed meetings throughout the year, each of which affects interest rates, even if indirectly.
See, mortgage rates are more affected by the 10-year Treasury rate than rate cuts or bumps set by those Fed meetings. That doesn’t mean, however, that the Fed meetings don’t matter. The next Fed meetings are set for January 26-27 and March 17-18. Whether they’ll cut rates is anyone’s guess, but mortgage rates often adjust in anticipation of what the Fed might do.
For those in the market to refinance, that might mean the better move is to pay less attention to the Fed meeting schedule and more to the math of refinancing. After all, the best refi is the one where the rate you get today translates to long-term savings.
So, is 2026 your year to refinance your mortgage? It very well could be, and the best advice out there is to close out 2025 with a clear understanding of your financial baseline, according to David Askew, managing director and senior wealth advisor at Mercer Advisors.
“First, evaluate the impact of the interest rate change on your monthly cash flow,” Askew said via email. Even a slight reduction can help ease a tight household budget. But before signing on the dotted line, it’s important to confirm that the refi savings add up to justify the effort.
Askew said a homeowner who took out a 30-year fixed-rate mortgage for $500,000 in 2022 at 7% could see meaningful savings even with a modest rate drop. If rates drop to 5.75% in 2026 after only 48 months of payments, refinancing could bring their monthly payment down from $3,327 to $2,786, freeing up nearly $550 in the borrower’s monthly budget.
Use the monthly mortgage payment calculator below to see how different mortgage rates and terms would affect your monthly payment should you refinance.
Factor in closing costs and loan fees
Additionally, you must account for closing costs in the refinance, which typically range from 2% to 6% of the total loan amount. In this case, the borrower refinanced $477,373 of the original $500,000, adding closing costs of roughly $9,547 to $28,642.
Ask yourself: Does it make sense to pay these costs or stick with my current, albeit higher, mortgage rate?
If you plan on staying in your home for the long haul, refinancing usually makes sense. You’ll save thousands in interest costs over the life of your mortgage loan. If you can roll closing costs into your loan, you have less out-of-pocket stress, but it’s also a move that could increase your monthly payment and interest paid over time.
However, if you plan to stay in your home for a shorter term, the math becomes even more important in determining whether it makes sense to refinance your mortgage. Gary Schlossberg, a global strategist with Wells Fargo Investment Institute, noted in an email interview that while homeowner tenure varies by region, most homeowners stay in place for roughly 12 years on average. Those expecting to relocate well before that may struggle to reach their break-even point.
The break-even point for a mortgage refinance is the time it takes to recoup the refinancing costs. You can calculate your breakeven point using a simple formula:
Total refinance costs / monthly savings = refinance break-even point (in months)
Using that same $500,000 mortgage example from above, say your refinancing costs total 2% of your loan balance, or $9,547, and your monthly savings are $550. Your break-even point is just over 17 months away ($9,547/550).
However, if your closing costs total 6% of your loan, or $28,642, your break-even point extends to 52 months ($28,642/550) – more than triple that of the refinance with lower costs.
Before deciding whether to refinance your home in 2026, consider that your emergency savings play a significant role in this conversation. If your emergency fund is lacking, you should think carefully before moving forward with a refi. Doing so could wipe out the cash you rely on for unexpected expenses or job instability.
Experts say that three to six months’ worth of expenses in savings is a good target for an emergency fund. If refinancing would tap into this cash, evaluate how long it would take you to rebuild your savings to a comfortable level. Every month that your savings fall below your ideal target leaves you increasingly exposed to life’s uncertainties.
Gather your most recent mortgage statement and note your balance, interest rate, remaining term, and whether you’re paying mortgage insurance. This gives you a baseline for comparing refinance offers.
Rates and closing costs vary widely, even on the same day. Ask at least three lenders for a written mortgage Loan Estimate so you can compare interest rates, fees, and projected monthly payments side by side.
Divide your total closing costs by your estimated monthly savings to calculate how long it will take to recoup the up-front expense. If you don’t expect to stay in the home past your break-even point, refinancing might not be the best move.
Consider whether you want to keep the same term, shorten it, or extend it. A shorter-term loan, such as a 15-year fixed-rate mortgage, can save you on interest but may increase your monthly payment. Extending the term lowers your payment but increases long-term interest — a trade-off some borrowers are comfortable making if cash flow is tight.
With major Fed meetings scheduled for January and March 2026,, markets could shift quickly. Ask each lender how long their mortgage rate locks last, whether extensions or rate float-downs are available, and how pricing changes if you need additional time to close.
Look at the total cost over time, not just the monthly payment. If you’re switching terms or rolling closing costs into the loan with a no-closing-cost refinance, the long-term numbers can look very different and should align with your broader financial goals.
Once you’ve determined that refinancing makes financial sense, it’s worth thinking about how the new loan fits into your bigger financial picture. For some borrowers, a lower monthly payment frees up room to pay down high-interest credit cards, auto loans, or student debt — a shift that may offer more meaningful long-term savings than the refinance alone.
Homeowners should also consider how a refinance affects their future flexibility. A lower monthly mortgage payment can make it easier to weather income changes, job transitions, or unexpected expenses. For homeowners who expect to stay in their property for a long time, locking in a stable payment with a fixed-rate loan compared to an adjustable-rate mortgage can also add predictability to their financial plans.
Finally, refinancing doesn’t have to be a one-and-done decision. If rates fall further later in 2026, you can run the numbers again and refinance a second time, as long as the savings outweigh the closing costs and align with your long-term goals.
Refinancing your house can be a smart move, but only if it genuinely improves your financial picture. The biggest question is whether the new interest rate and payment help your overall financial picture — not just on paper, but in your actual monthly budget. Homeowners often refinance to lower their payments, shorten their loan term, or tap into equity with a cash-out refinance, but the long-term savings must outweigh the closing costs. It also matters how long you plan to stay in the home. For some borrowers, a refi can free up cash flow and reduce stress. For others, it may not pencil out.
Predicting rates is tricky, but most economists expect any mortgage rate decreases in 2026 to be gradual rather than dramatic. The good news? Mortgage rates on 30-year fixed-rate loans are barely above 6% — a significant drop from the 7.04% average last January. The rates on 15-year fixed-rate loans are even lower at 5.38%, down from 6.27% last year. If these rates look attractive compared to your current rate, it’s more important to calculate your estimated closing costs and break-even point (the number of months it takes to recoup your closing costs) than holding out for a modestly lower interest rate.
It’s understandable to hope for a return to the ultra-low mortgage rates we saw in 2020 and 2021, but most economists say those days are likely behind us for now. Rates that low were the result of an extraordinary mix of pandemic-era stimulus, economic uncertainty, and aggressive Fed intervention — conditions that aren’t expected to repeat anytime soon. Could rates drift lower from where they are today? Absolutely. But mortgage rates dropping below 4% again, much less 3%, would require a major (and not necessarily favorable) economic shift, and experts generally aren’t predicting that in the foreseeable future.
Laura Grace Tarpley edited this article.
