Rates Just Dropped Below 6%. Should You Refinance?

You’ve probably seen the headlines this week. The average 30-year fixed mortgage rate dropped to 5.98%, the first time it’s been below 6% since September 2022. According to Freddie Mac’s Primary Mortgage Market Survey for the week ending February 26, 2026, rates have now fallen for three consecutive weeks, and the trend is pulling more homeowners off the sidelines.

If you’re sitting on a mortgage with a 6.5%, 7%, or even 7.5% interest rate, this is the first time in over three years that refinancing could make real financial sense. But “rates are lower” alone isn’t a reason to refinance. The math has to work. Let me walk you through how to figure out if it works for you.

Key Takeaways

• The 30-year fixed rate hit 5.98% as of February 26, 2026, the lowest since September 2022.
• Roughly 1 in 5 outstanding mortgages carry a rate of 6% or higher, according to a February 2026 ICE Mortgage Technology report. These borrowers are the most likely to benefit from refinancing right now.
• Refinancing comes with closing costs of 2% to 5% of your loan balance. On a $350,000 loan, that’s $7,000 to $17,500.
• The break-even calculation matters more than the rate itself. If your monthly savings don’t recoup the closing costs before you sell or refinance again, you lose money.
• Shopping at least three lenders can save you $100 or more per month. I shop over 100 wholesale lenders for every client because the difference between the best and worst offer is often significant.

Who Should Be Paying Attention Right Now

If you closed on a mortgage between mid-2022 and late 2024, you likely locked in a rate somewhere between 6% and 8%. According to the ICE Mortgage Technology report, about 22% of all outstanding conforming mortgages now have rates at or above 6%. Those borrowers are the primary candidates for a rate-and-term refinance.

Here’s a quick way to think about it. If you can drop your rate by at least 0.75 percentage points, the savings usually justify the costs. On a $350,000 loan balance, going from 7% to 5.98% saves you roughly $250 per month in principal and interest alone. That’s $3,000 per year back in your pocket.

If your rate is already in the low 6% range, the savings might be smaller. You’d still want to run the numbers, but the break-even period gets longer when the rate drop is modest.

And if you’re one of the roughly 62% of borrowers with a rate under 5%, refinancing into today’s rates would increase your payment. Stay where you are.

The Break-Even Calculation: The Only Number That Actually Matters

Refinancing isn’t free. You’re paying closing costs to get a new loan, and those costs need to be earned back through monthly savings before the refinance pays for itself.

Here’s how to calculate it:

Break-even months = Total closing costs / Monthly payment savings

For example, on a $350,000 loan:

• Current rate: 7.0% (payment: $2,329/month P&I)
• New rate: 5.98% (payment: $2,095/month P&I)
• Monthly savings: $234
• Closing costs: $8,500 (estimated at ~2.4% of loan amount)
• Break-even: $8,500 / $234 = 36 months (3 years)

If you plan to stay in the home for more than 3 years, this refinance makes money. If you’re thinking about selling in the next year or two, it doesn’t.

I run this calculation for every client before we even start the application. It’s the single most important number in the refinance decision, and too many homeowners skip it.

What Refinancing Actually Costs

People hear “2% to 5% closing costs” and assume the worst, but the actual number depends on your loan size, your state, and your lender. Here’s what you’re typically paying for on a refinance:

• Lender fees: Origination fee, underwriting fee, processing fee. Combined, these usually run $1,500 to $3,000.
• Appraisal: $400 to $700, depending on your market. The lender needs a new appraisal to confirm your home’s current value and your loan-to-value ratio.
• Title insurance and title search: $800 to $2,000. Some states offer a reissue rate if your current title policy is recent.
• Recording fees and government charges: $200 to $500, depending on your county.
• Prepaid items: Property taxes, homeowners insurance, and per diem interest that get rolled into the new escrow account.

On a $350,000 refinance, total closing costs typically land between $7,000 and $12,000. Some lenders offer “no-closing-cost” refinances where they roll the costs into a slightly higher rate. That can make sense if you want to avoid the upfront hit, but you pay more over the life of the loan.

I always show my clients both options, the lower rate with closing costs and the slightly higher rate with no out-of-pocket costs, so they can pick the one that fits their timeline.

What About a Cash-Out Refinance?

A cash-out refinance lets you tap into your home’s equity by refinancing for more than you owe and pocketing the difference. With home values up in most markets, many homeowners have more equity than they realize.

Here’s a realistic example. Say your home is worth $450,000 and you owe $300,000. That’s $150,000 in equity. With a cash-out refinance, you might be able to pull out $50,000 to $60,000 (lenders typically cap your loan-to-value ratio at 80%) while still dropping your interest rate.

Cash-out refinances come with slightly higher rates than rate-and-term refinances, usually 0.125% to 0.5% more. But if you’re using the money for something with a real return, like paying off high-interest credit card debt at 22%, renovating to increase your home’s value, or consolidating a student loan at 8%, the math can work very well.

What I tell my clients: cash-out is a tool, not a piggy bank. If you’re pulling equity to fund a vacation or buy a car, think carefully. If you’re using it to eliminate debt that costs more than your mortgage rate, it’s one of the smartest moves you can make.

The “Should I Wait for Lower Rates?” Question

I hear this every day. “Rates just hit 5.98%, but what if they drop to 5.5% next month?”

Nobody knows where rates are going next month. The Federal Reserve does not set mortgage rates directly, and the bond market, which does influence mortgage rates, reacts to economic data in real time. Rates could drop further, or they could bounce back above 6% next week if an inflation report comes in hot.

Here’s what I know for certain: the rate you can lock today is the rate you can lock today. If the math works at 5.98%, it works. If rates drop further in six months, you can always refinance again. The cost of waiting is the money you leave on the table every month you’re paying a higher rate.

I closed a refinance for a client in Charlotte last week. She had been waiting since October for rates to come down further. In those four months, she paid roughly $1,000 more than she needed to because she kept waiting for the “perfect” rate. She locked at 6.05% and said she wished she’d done it sooner.

The best rate is the one that saves you money today, not the one that might exist tomorrow.

What You’ll Need to Get Started

Refinancing isn’t complicated, but being prepared speeds things up. Here’s what lenders will ask for:

• Most recent mortgage statement showing your current balance, rate, and payment
• Two months of bank statements (all pages, all accounts)
• Two most recent pay stubs
• W-2s or 1099s for the last two years
• Homeowners insurance declarations page
• Government-issued ID

If you’re self-employed or have non-traditional income, you may qualify through a bank statement loan or non-QM program. These programs use 12 to 24 months of bank deposits instead of tax returns to calculate income. I work with self-employed borrowers regularly and can usually find a path forward.

The whole process typically takes 30 to 45 days from application to closing. Some lenders are faster, some are slower. I’ve been closing refinances in as few as 21 days lately because my team front-loads the underwriting work.

When Refinancing Does NOT Make Sense

Not every situation calls for a refinance. Here are the scenarios where I tell clients to hold off:

Your rate is already below 5.5%. If you locked in during the pandemic-era low rate window (2020 to early 2022), your rate is almost certainly better than anything available today. There’s no reason to refinance into a higher rate.

You’re planning to sell within 12 to 18 months. If you can’t hit the break-even point before you sell, the refinance costs you money. Run the break-even calculation first.

You’ve recently started a new amortization schedule. If you refinanced or bought in the last year or two, you’re still in the early part of your loan where most of your payment goes toward interest. Restarting the clock with a new 30-year loan means more total interest over time. Consider a shorter-term refinance (20 or 15 years) to offset this.

Your credit situation has changed for the worse. If your credit score has dropped significantly since you got your current loan, you might not qualify for a rate that’s meaningfully better. Check your credit before applying.

You can’t document your income. Standard refinances require full documentation. If your income has changed or you’ve recently gone self-employed, a conventional refinance might not work. That said, bank statement and non-QM programs exist for exactly this situation.

Why Shopping Multiple Lenders Is Non-Negotiable

According to a 2025 CFPB report, borrowers who get quotes from at least three lenders save an average of $100 or more per month compared to those who go with the first lender they talk to. On a 30-year loan, that’s $36,000.

Most people don’t shop because they think it’ll hurt their credit. It won’t. Multiple mortgage inquiries within a 45-day window count as a single inquiry on your credit report. This is specifically designed to encourage comparison shopping.

As a mortgage broker, I shop over 100 wholesale lenders for every refinance client. That’s not a marketing line. It’s what I actually do. When a client comes to me with a 7% rate looking to refinance, I pull pricing from dozens of lenders the same day and show them the best three options side by side with actual numbers.

The difference between the lowest and highest rate I see for the same borrower on the same day is usually 0.25% to 0.5%. On a $350,000 loan, that’s $50 to $100 per month. Over 30 years, it adds up to tens of thousands of dollars.

You can either do this yourself by calling multiple banks and credit unions, or you can work with a broker who does it for you. Either way, don’t go with the first number someone gives you.

What Happens After You Lock

Once you decide to move forward and lock your rate, here’s the typical timeline:

1. Application and disclosures (Day 1-3): You submit your documents and the lender sends you a Loan Estimate within three business days.
2. Appraisal ordered (Day 3-10): The lender orders an appraisal to confirm your home’s value. This takes one to two weeks depending on your market.
3. Underwriting review (Day 10-25): The underwriter reviews your file, income, assets, credit, and the appraisal. They may ask for additional documents. Respond quickly to keep things moving.
4. Clear to close (Day 25-35): Once underwriting approves your file, you receive a Closing Disclosure at least three business days before closing.
5. Closing (Day 30-45): You sign the paperwork, the old loan gets paid off, and the new loan takes over. Most refinance closings can be done at a mobile notary location or even at your kitchen table.

Your first payment on the new loan is typically due the first of the month after next. So if you close on March 15, your first payment is usually May 1. That gives you a built-in skip-a-payment month, which is a nice cash flow bonus.

FAQ

How much does it cost to refinance?

Closing costs typically run 2% to 5% of your loan amount. On a $350,000 loan, that’s $7,000 to $17,500. The exact amount depends on your lender, your state, and the specifics of your loan. Some lenders offer no-closing-cost options where the costs are rolled into a slightly higher rate.

Can I refinance if I have less than 20% equity?

Yes. You don’t need 20% equity to refinance, but if your loan-to-value ratio is above 80%, you’ll likely pay private mortgage insurance (PMI) on a conventional refinance. FHA streamline refinances and VA Interest Rate Reduction Refinance Loans (IRRRLs) have their own equity requirements and may not require an appraisal.

Is there a minimum rate drop that makes refinancing worth it?

There’s no universal rule, but a 0.75% to 1% rate drop is generally the threshold where the savings outweigh the costs for most borrowers. The real answer depends on your loan size, your closing costs, and how long you plan to keep the loan. Run the break-even calculation.

How long does a refinance take?

Most refinances close in 30 to 45 days. Some lenders are faster, some are slower. I’ve been closing in as few as 21 days because my team front-loads the underwriting documentation. Responsiveness matters. The faster you get your documents to the lender, the faster the process moves.

Will refinancing hurt my credit score?

The hard inquiry from the mortgage application may cause a small, temporary dip of 5 to 10 points. Multiple mortgage inquiries within a 45-day window count as a single inquiry. Your score typically recovers within a few months, and the long-term financial benefit of a lower rate far outweighs a short-term credit score dip.

Can I refinance a second home or investment property?

Yes, but rates on non-primary residences are typically 0.25% to 0.75% higher than primary home rates, and lenders may have stricter equity and income requirements. Investment property refinances usually require at least 25% equity. I can run the numbers for you to see if it makes sense.

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This content is for educational purposes only and does not constitute financial advice. Mortgage rates, terms, and eligibility vary by borrower and are subject to change. Contact Cole Brantley (NMLS# 1905939) for personalized guidance based on your specific situation.