Why buyers shouldn’t count on a future refi to save money 

For home shoppers thinking about buying at an elevated mortgage rate with the hope of refinancing later, a new study warns that "dating the rate" may be risky.

Most homebuyers today would need 30-year mortgage rates to drop 75 basis points before they could see substantial savings from refinancing — and even then, it would take three years to break even after factoring in closing costs, according to a new study conducted by Neighbors Bank. Borrowers with 15-year mortgages would generally break even sooner.

"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, in a press release. "Unless you're seeing a significant drop, refinancing may not make sense right away."

The point at which a borrower breaks even "isn't just about the rate," he added. "It's about how long you plan to stay in your home, how much you pay upfront and where you live."

A 'helpful tool' — not a concrete strategy

The study's findings suggest that buyers shouldn't count on refinancing as a strategy to afford a new home. It "can be a helpful tool down the road," Vehige said in an email to Real Estate News, but "it should never be the cornerstone of a homebuying plan."

"There's no guarantee that rates will drop in the near future, or that a borrower's financial situation will put them in a position to qualify for a refinance," he added. "For that reason, it's important for buyers to take on a mortgage payment they can comfortably manage from day one, even without the possibility of refinancing. It is always safer to view refinancing as a bonus opportunity rather than a financial lifeline."

On the other hand, waiting for a small dip in rates may not pay off quickly enough to justify delaying a home purchase. 

"This doesn't mean buyers should rush in, but those planning to stay in their homes for at least three to five years may not benefit from delaying a purchase for a small rate drop," the report said. "For those planning to stay in their home for at least five years, locking in today's rate might be the smarter choice for long-term savings."

Refinance closing costs differ by location

Further complicating matters is that refinancing costs vary widely from state to state, with differences influenced by loan size, insurance premiums and closing costs.

Property taxes are the biggest factor, Vehige said, but even recording fees and transfer taxes make a difference. "Taken together, these differences mean that two borrowers with nearly identical loans may face very different closing costs simply because of where they are purchasing a home," Vehige said.

If rates drop by 50 basis points, homeowners who bought in 2025 will be able to recoup their refinancing costs in three years — but only in 10 states. Homeowners in every state will be able to break even within five years, though the savings vary widely. 

In New Hampshire, for example, borrowers who refinance at a drop of 50 basis points can save nearly $3,000 more in five years than borrowers in Louisiana. The report suggested that this is in part because New Hampshire homeowners tend to have higher borrowing amounts.

Meanwhile, the locations with the highest five-year net savings after a drop of 50 basis points tend to be where home prices are highest. Washington, D.C., California, Hawaii, Washington state and Colorado topped the study's list, while Illinois, West Virginia and Louisiana were at the bottom.