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Should You Refinance Now Before Rates Fall Further? A Mortgage Refinance Plan for 2025 & 2026

  • HFF Staff Writer
  • 1 day ago
  • 4 min read
Four people in business attire discussing documents at a conference table. A laptop and papers are visible. The mood is focused.

What's Behind The Change in Rates, & Why Bother Refinancing Now?


Rates are slowly dropping off those recent highs, but volatility still rules the day. If you bought or refinanced during the late peak-rate window, you've got a tough call ahead: take advantage of today's lower rates or wait for possibly even better deals. What you do depends on some basic math, how long you expect to stay in the house, the cost of closing, and your overall financial plan (budget, retirement savings, and priority debts).


The Bottom Line: Refinancing can be your friend – but only if the savings really add up and align with your goals.


How Do I Get a Real Break-Even?


You can do a quickie math problem like this: Closing Costs / Monthly Payment Reduction = Months to Break Even. Or – if you want a more complete picture – consider this:


  • All the costs involved: lender fees, points, title fees, appraisals, escrow setup, and that upfront interest.

  • Tax implications: mortgage interest may or may not be tax-deductible, depending on your itemisation.

  • The Amortisation Effect: restarting that 30-year clock might lower your payment but end up costing you more in lifetime interest if you don't pay down aggressively.

  • Opportunity Cost: what could you do with that cash or those monthly savings (e.g., max out a 401(k), save for college, or pay off higher-rate debt)?


If you think you'll be staying past the break-even point – and the refinance really improves your long-term plan – then it's worth serious consideration.


Fixed, ARM, or Buydowns – Which Mortgage to Choose?


  • Fixed Rate: great for stability and long-term holds. If you're at least 5 years in and want payment certainty, then a fixed makes a lot of sense.

  • Adjustable Rate (ARM): worth looking at if the initial rate is a lot lower and you're planning to sell, refinance, or move before the adjustment period kicks in. Just be clear on what you're getting into with caps, margins, and the overall index.

  • Temporary Buydowns (e.g. 2-1): can smooth out cash flow early but make sure you're not paying wildly for something a permanent rate reduction or holding onto cash in savings could do just as well.

  • Points: paying points to bring the rate down can be a good long-term play, but if you're in a hurry, just keep costs low and leave your options open.


Should You Shorten Your Loan Term or Stick with 30 Years?


A 15 or 20 year term will likely give you a lower rate and pay down the principal faster but, of course, that comes with a bigger monthly payment. If retirement is on the horizon & you want to retire with little or no mortgage then that might be perfect for you. But, if cash-flow flexibility is what you need then you could refinance to 30 years and set up an automatic principal prepayment to mimic a shorter schedule without locking yourself into a higher minimum.


What If You Have High-Interest Non-Mortgage Debt?


Refinancing to consolidate can simplify things and lower your overall rate – but watch out for the term extension trap: moving short-term debt into a 30-year mortgage might lower your payments but end up costing you more over the long run. A balanced approach is to refinance your mortgage on its own merits, then use the freed up cash – plus a structured payoff plan – to knock out those higher-rate balances quickly.


How Does Refinancing Affect My Broader Plan (Taxes, College, Retirement)?


  • Taxes: The value of mortgage interest depends on whether you itemise and the size of your other deductions. Don't assume that old "interest is good" rule still applies.

  • College Funding: Lowering your housing costs can free up cash for 529 contributions - consider automating the difference.

  • Retirement Readiness: Getting a refinance that frees up cash to fully fund workplace plans, Roth IRAs (if eligible), or an HSA (if eligible) can compound for decades, often far outstripping small differences in mortgage APR.


What Docs and Underwriting Issues Should I Expect?


Lenders are going to check your income, assets, credit history and property value. Watch out for those loan-to-value (LTV) thresholds that trigger price changes, and make sure your debt-to-income (DTI) is healthy. If your home value has gone up, you may clear mortgage insurance; if not, factor that into the new payment. Self-employed borrowers should have their year-to-date P&Ls and business statements ready to prevent delays.When Does Waiting Make More Sense?


  • Your break-even far exceeds how long you expect to stay in the home.

  • You expect significantly better rates in the near future and can easily make current payments.

  • Your credit score, DTI or LTV will substantially improve in the next 6-12 months (paying down debt, credit clean-up, or value appreciation).

  • You're planning to move or remodel in a way that will change the loan amount anyway.


A Quick Decision Checklist


  1. Do a conservative break-even calculation using all the costs involved.2. Stress Test Your Plan: What If Mortgage Rates Don't Budge - Or Even Get Worse?

  2. Decide on a Mortgage Structure (Fixed Rate, ARM, Points, or a Term) That Fits Your Life & Timeframe.

  3. Make Sure Your Cash Flow Savings are Aligned With Specific Goals - Like Retirement, Saving for Your Kid's Education, or Building an Emergency Fund.

  4. Get A Loan Estimate from 2 or More Lenders & Compare the Same Lock In Period, Points and any Credits Being Offered.

  5. Before You Put Your John Hancock on Anything - Run YourPlan By Your Financial Advisor and CPA.


If you want, we can do a side by side mortgage refinance analysis that includes a break-even analysis, a cash flow map and a payoff plan tailored to your specific goals - and give you a one pager summarizing the next steps you need to take to shop around to lenders.



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