New analysis shows the break-even point for refinancing remains out of reach for most unless mortgage rates fall significantly
With mortgage rates still hovering near 7%, many 2025 homebuyers followed the advice to “marry the house, date the rate,” buying with the expectation they could refinance later. But a new report released today by Neighbors Bank finds that most of those buyers won’t break even on a refinance unless interest rates fall by at least 0.75 percentage points.
The national analysis, which modeled typical refinance scenarios across all 50 states, found that smaller rate drops of 0.25 or 0.5 points typically fail to deliver short-term savings for the average buyer.
As a rule of thumb, borrowers typically look for a break-even point – the moment when savings from a lower rate outweigh upfront closing costs – within about three years to make refinancing worthwhile. But the data shows that many buyers are unlikely to hit that threshold unless rates decline more significantly.
Refinance Savings by Rate Drop: What It Takes to Break Even
Here’s how refinancing scenarios break down for a typical 2025 borrower:
- 0.25-point drop: Still $2,424 underwater after 3 years
- 0.5-point drop: Break-even takes 3.08 years
- 0.75-point drop: Break-even reached just under 3 years
- 1.0-point drop: Break-even in 20 months, with $4,764 in net savings
These findings are based on a modeled scenario using a 30-year fixed-rate mortgage at 6.8%, with an average loan amount of $386,339 and $5,458 in closing costs.
But for prospective buyers hoping to time the market, the data offers a cautionary note: Waiting for a small rate drop may not pay off. Even with a 0.5-point decrease, most borrowers wouldn’t see savings until well into year four, meaning today’s rates could still make more sense for those planning to stay in their home long-term.
“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 isn’t just about the rate. It’s about how long you plan to stay in your home, how much you pay upfront, and where you live.”
Top 10 States Where Refinancing Pays Off Fastest
Under a 0.5-point rate drop, only 10 states offered positive net savings within three years.
| Rank | State | Break-even (Yrs.) | 3-Year Savings | 5-Year Savings |
| 1 | New Hampshire | 2.8 | $316 | $4,103 |
| 2 | Colorado | 2.8 | $295 | $4,712 |
| 3 | California | 2.8 | $405 | $6,553 |
| 4 | Washington | 2.9 | $223 | $5,047 |
| 5 | District of Columbia | 2.9 | $231 | $6,766 |
| 6 | Hawaii | 2.9 | $200 | $6,488 |
| 7 | Missouri | 2.9 | $72 | $2,424 |
| 8 | Montana | 3.0 | $52 | $3,773 |
| 9 | Utah | 3.0 | $54 | $4,087 |
| 10 | Alaska | 3.0 | $71 | $3,412 |
Notably, high-cost housing markets like California, Washington, D.C., and Hawaii offered the highest five-year savings, thanks to larger loan sizes that magnify the impact of even a small rate cut.
Vehige noted that beyond rate cuts, refinancing may also make financial sense in other scenarios. Homeowners may choose to refinance to:
- Access home equity through a cash-out refinance
- Lower their monthly payment by extending the loan term
- Switch from an adjustable-rate mortgage to a fixed-rate loan for stability
Shorter Loan Terms and Conventional Mortgages Reap Faster Rewards
The report also found that borrowers with shorter loan terms and conventional mortgages tend to realize refinance savings more quickly. Specifically, 15-year mortgage holders break even faster and accumulate more savings than 30-year borrowers when rates drop by the same amount.
Conventional loans also outperform FHA, VA, and USDA loans in terms of refinance payback periods, largely due to lower insurance premiums and fewer associated fees. For example, under a 0.5-point rate drop, a typical 15-year borrower would see $1,350 in net savings after three years, while a 30-year borrower would still be $184 in the red.
State-by-State Breakdown: Where Refinancing Works—and Where It Doesn’t (Yet)
Refinance timelines vary significantly depending on location, due to differences in property taxes, loan sizes, homeowners’ insurance and closing costs.
Based on the analysis, every state eventually breaks even within five years, but the size of the savings depends greatly on location. For example, New Hampshire borrowers, who have an average borrowing amount of $430,247, see nearly $3,000 more in five-year savings after refinancing at a 0.5-point rate drop than homeowners in Louisiana, who have an average loan amount of $252,075.
Average Refinance Savings By State (0.5 rate reduction)
| State | Years to Break-Even | Savings after 3 Years | Savings after 5 Years |
| National | 3.2 | -$257 | $3,144 |
| Alabama | 3.3 | -$391 | $1,908 |
| Alaska | 3 | $71 | $3,412 |
| Arizona | 3 | -$9 | $3,650 |
| Arkansas | 3.5 | -$543 | $1,723 |
| California | 2.8 | $405 | $6,553 |
| Colorado | 2.8 | $295 | $4,712 |
| Connecticut | 4.1 | -$1,971 | $1,563 |
| Delaware | 3.4 | -$624 | $2,443 |
| District of Columbia | 2.9 | $231 | $6,766 |
| Florida | 3.3 | -$631 | $2,897 |
| Georgia | 3.2 | -$263 | $2,942 |
| Hawaii | 2.9 | $200 | $6,488 |
| Idaho | 3.2 | -$232 | $3,166 |
| Illinois | 4.1 | -$1,449 | $1,215 |
| Indiana | 3.3 | -$235 | $2,091 |
| Iowa | 3.5 | -$474 | $1,498 |
| Kansas | 3.3 | -$310 | $2,070 |
| Kentucky | 3.3 | -$290 | $1,984 |
| Louisiana | 4.1 | -$1,195 | $1,028 |
| Maine | 3.2 | -$282 | $2,828 |
| Maryland | 3.1 | -$164 | $3,605 |
| Massachusetts | 3.3 | -$713 | $4,230 |
| Michigan | 3.9 | -$749 | $1,547 |
| Minnesota | 3.4 | -$511 | $2,289 |
| Mississippi | 3.6 | -$558 | $1,408 |
| Missouri | 2.9 | $72 | $2,424 |
| Montana | 3 | $52 | $3,773 |
| Nebraska | 3.5 | -$603 | $1,840 |
| Nevada | 3.3 | -$453 | $3,237 |
| New Hampshire | 2.8 | $316 | $4,103 |
| New Jersey | 3.7 | -$1,299 | $3,002 |
| New Mexico | 3.5 | -$578 | $1,807 |
| New York | 3.4 | -$858 | $3,437 |
| North Carolina | 3.3 | -$343 | $2,755 |
| North Dakota | 3.3 | -$384 | $2,128 |
| Ohio | 3.6 | -$700 | $1,653 |
| Oklahoma | 3.5 | -$524 | $1,703 |
| Oregon | 3.3 | -$417 | $3,413 |
| Pennsylvania | 3.5 | -$575 | $2,027 |
| Rhode Island | 3.2 | -$362 | $3,441 |
| South Carolina | 3.3 | -$517 | $2,407 |
| South Dakota | 3.3 | -$488 | $2,222 |
| Tennessee | 3.6 | -$812 | $2,387 |
| Texas | 3.3 | -$391 | $2,765 |
| Utah | 3 | $54 | $4,087 |
| Vermont | 3.1 | -$114 | $3,260 |
| Virginia | 3.3 | -$526 | $3,187 |
| Washington | 2.9 | $223 | $5,047 |
| West Virginia | 4.1 | -$861 | $1,144 |
| Wisconsin | 3.5 | -$613 | $2,050 |
| Wyoming | 3.1 | -$148 | $2,709 |
To read the full report, including methodology, visit: https://www.neighborsbank.com/learn/if-mortgage-rates-fall-who-wins/
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