Home Buying Tips: Why Counting on a Future Refinance Could Cost You
While many borrowers take out a mortgage with hopes of refinancing when mortgage rates eventually drop, experts are cautioning buyers not to treat refinancing as a guaranteed financial lifeline.
For today’s home shoppers, especially those purchasing at elevated interest rates, banking on “dating the rate” and refinancing later may be risky. According to a new study from Neighbors Bank, most homebuyers would need 30-year mortgage rates to fall at least 0.75% before seeing meaningful monthly savings. Even then, it could take three years or more to break even after factoring in closing costs. Borrowers with 15-year mortgages might break even sooner, but the same caution applies.
“Many assume that any drop in rates is enough to justify refinancing, but the math tells a different story,” said Jake Vehige, president of mortgage lending at Neighbors Bank. “Unless you’re seeing a significant drop, refinancing may not make sense right away.”
The break-even point depends on more than just the interest rate. Key factors include how long you plan to stay in your home, your upfront costs, and your location. Homebuyers should carefully evaluate these details before making assumptions about future savings.
Refinancing: A Helpful Tool, Not a Guaranteed Strategy
A recent study suggests that home buyers shouldn’t rely on refinancing as their main strategy to afford a new home.While refinancing can be a helpful tool down the road, it should never be treated as the cornerstone of a homeownership plan.
“There’s no guarantee that mortgage rates will drop in the near future, or that a borrower’s financial situation will allow them to qualify for a refinance,” said Jake Vehige, president of mortgage lending at Neighbors Bank. “That’s why it’s so important for buyers to take on a mortgage payment they can comfortably manage from day one even without the possibility of refinancing. It’s safer to view refinancing as a bonus opportunity rather than a financial lifeline.”
The study also found that waiting for a small dip in rates may not provide enough savings to justify delaying a home purchase. For buyers who plan to stay in their home for at least three to five years, holding off in hopes of a slight rate drop might not be worthwhile. Instead, locking in today’s rate could be the smarter choice for long-term savings.
How Refinance Closing Costs Vary by Location
Refinancing isn’t a one-size-fits-all solution, and costs can vary significantly depending on where you live. According to a recent study, refinancing costs differ widely from state to state, influenced by factors such as loan size, insurance premiums, and closing costs.
Property taxes play the biggest role, but even recording fees and transfer taxes can make a noticeable difference. “Two borrowers with nearly identical loans may face very different closing costs simply because of where they are purchasing a home,” explained Jake Vehige, president of mortgage lending at Neighbors Bank.
The study found that if mortgage rates drop by 50 basis points, homeowners who purchased in 2025 could recoup their refinancing costs in three years but only in 10 states. Nationwide, homeowners would generally break even within five years, though the level of savings varies widely.
For example:
New Hampshire borrowers who refinance after a 50-basis-point drop could save nearly $3,000 more over five years compared to those in Louisiana, largely due to higher borrowing amounts in New Hampshire.
States with the highest five-year net savings include Washington, D.C., California, Hawaii, Washington state, and Colorado, where home prices are typically higher.
On the other end, Illinois, West Virginia, and Louisiana ranked lowest for five-year refinance savings.
Key takeaway: When evaluating refinancing, homeowners should factor in not just interest rate changes but also location-based costs, as these can significantly impact long-term savings.
