Is Now the Right Time To Refinance? How To Know Before You Act

With 80% of outstanding mortgage debt carrying a sub-6% interest rate and current mortgage rates stubbornly above that threshold, refinance activity in recent years has been largely muted.

But after a series of rate cuts from the Federal Reserve, the average 30-year fixed mortgage rate slipped to 6.17%, the lowest figure in a year. That shift has cracked open the refinance window for select borrowers.

Nearly 1.7 million “highly qualified” mortgage holders—those with at least 20% equity, credit scores of 720 or higher, and potential savings of 75 basis points or more—are now positioned to benefit, according to data from ICE Mortgage Technology. An additional 4.1 million homeowners could also save at least 75 basis points by refinancing, though weaker credit or smaller equity cushions could complicate their decision.

The opening comes amid deep affordability fatigue, with 93% of Americans saying housing costs are too high. For borrowers with the right balance of equity, credit, and financial circumstances, refinancing may represent one of the few meaningful ways to reclaim breathing room in their monthly budgets.

Why this moment feels different

Homeowners are finally seeing borrowing conditions shift in their favor, at a time when they’re sitting on record amounts of wealth. Together, homeowners collectively hold $17.3 trillion in home equity, with $11.2 trillion considered “tappable,” according to ICE Mortgage Technology.

That "tappable" equity refers to the portion that homeowners can access through refinancing or a home equity line of credit while still maintaining 20% ownership. As affordability pressures deepen nationwide, that equity is looking more valuable than ever.

Outside of selling the home, homeowners have a few ways of tapping into that equity through refinancing:

• Rate-and-term refinance: Allows homeowners to replace their current loan with a new one at a lower rate or different term. It's best for those looking to lower their monthly payment.
• Cash-out refinance: With this refinancing tool, homeowners can take out a new, larger mortgage and get the difference in cash. It's commonly used to fund renovations, pay off high-interest debt, or cover other major expenses.
• Home equity loan: This option allows homeowners to borrow a lump sum against their home’s value while keeping their current mortgage. It's best for one-time expenses, like home repairs or other emergency expenses, where you want a fixed payment.
• Home equity line of credit (HELOC): With a HELOC, homeowners can borrow as needed from a revolving line of credit secured by your home. The flexibility of this tool makes it best for expenses like repairs that may have some variability.

That potential, however, depends on timing and circumstance.

“Rates peaked near 8% in October 2023, so many buyers from that period could now benefit from refinancing,” says Hannah Jones, senior economic research analyst at Realtor.com®. “However, refinancing will not appear attractive for the roughly 80% of mortgage holders with rates below 6%.

Andrew Latham, a certified financial planner with SuperMoney, agrees. He suggests homeowners should start by comparing their current mortgage rate to today’s average refinance rates. 

“If their current rate is already below that, refinancing purely for a better interest rate likely doesn’t make sense,” he says.

How to know if refinancing makes sense for you

Whether refinancing makes sense comes down to four main factors: Your current mortgage rate, the size of the rate drop you could achieve, how long you plan to stay in the home, and your credit and equity position.

For those exploring their options, Sapan Bafna, CEO of Outamation, a mortgage solutions tool, outlines a few clear-cut reasons to consider a refinance:

“If you can lower your interest rate by at least .75%. If you want to shorten your loan term. If you need to take cash out. If you want to switch rate types from adjustable to fixed rate to lock in a fixed payment.”

If you want to achieve any of those financial goals, refinancing may make sense. But even with lower rates, the math only works if you plan to stay put long enough to recoup costs. Closing costs typically run between 2% and 6% of the loan amount. 

"A common rule of thumb is that refinancing may be worthwhile if you can reduce your rate by at least 0.75% to 1%, have at least five to seven years remaining on your mortgage, and plan to stay in the home long enough to break even on the costs,” says Latham. “For example, if refinancing costs $4,000 and saves $200 per month, you’d break even in 20 months. If you plan to move before that, the refinance likely won’t pay off.”

That break-even timeline is key: Refinancing can deliver relief, but only when the savings outweigh the reset.

Why many homeowners are still hesitant

Even as refinancing opportunities expand, most homeowners aren’t ready to take the plunge. A new survey from Unlock Technologies found that anxiety about rising costs and limited financial flexibility are keeping many on the sidelines.

“Refinancing is not in the cards for the vast majority of homeowners,” says Michael Micheletti, chief communications officer at Unlock Technologies. "The survey found that most homeowners feel that the Federal Reserve’s rate drops may be too little, too late. They’re operating from a place of worry, with most anticipating having to spend even more in 2026 on household expenses and many working with little to no emergency fund."

That mindset translates into a clear threshold for action. “92% of homeowners said they wouldn’t even consider a cashout refinance until rates dropped to 6% or below,” Micheletti says.

Even for those who could benefit, the process itself can be a deterrent. “Homeowners understand that refinancing involves more than just a lower interest rate. It comes with all the closing costs, fees and requirements of getting a first mortgage," he adds.

What the refinance opportunity signals

If rates continue to drift lower, more homeowners could soon find themselves eligible to refinance—particularly those who bought or refinanced between 2023 and 2025, when borrowing costs were at their most recent peak. Even a modest dip below 6% could unlock the next wave of refinance activity.

“Conventional wisdom holds that refinancing makes sense when rates drop by 0.5 to 1 percentage point below a borrower’s existing rate,” says Jones. 

“While it can take a few years to recoup closing costs, homeowners who plan to stay put often find that lower monthly payments and the option to extend the loan term more than offset the upfront expense,” she adds.

For many, the appeal isn’t just lower payments but it’s long-term security. 

“Importantly, we also found that the vast majority of homeowners (77%) still believe that owning a home is one of the best ways to grow personal wealth, and 60% say that having home equity provides an extra level of security,” says Micheletti. “But for the near future, we see homeowners facing continued high prices, rates that aren’t motivating them to take action and high levels of stress.”

That stress underscores the paradox at the heart of the current housing market: Homeowners have record wealth on paper but limited flexibility to use it.

For now, refinancing remains a niche opportunity. But with affordability stretched thin and financial relief in short supply, even a small rate break could prompt millions of homeowners to take another look at the math—and finally step back into the market.