How much should rates drop before I refinance?

There is no fixed number. Divide your closing costs by the monthly savings to get the break-even in months. If you will keep the loan well past that point, even a half-point drop may be worth it on a larger balance. On a small balance, a full point may not be.

How soon can you refinance after buying a house?

A conventional rate-and-term refinance has no agency waiting period in most cases, though lenders may set one. A conventional cash-out refinance requires the existing mortgage to be at least 12 months old. FHA Streamline and VA IRRRL refinances require about seven months of seasoning and six payments made.

What is a good refinance break-even?

Shorter is better, and the right answer depends on your plans. Many homeowners look for a break-even of two to three years or less, but what matters is that it falls comfortably inside the time you expect to keep the home and the loan.

Should I refinance to a 15-year mortgage?

If the higher payment fits comfortably in your budget, a shorter term means far less total interest. If the payment would be tight, a 30-year loan with voluntary extra principal gives you much of the savings with a safety valve.

Can I refinance if I am self-employed?

Yes. Expect to document income with tax returns, and know that a portfolio lender may be able to use judgment where an automated system cannot. See our self-employed mortgage guide for what to gather.

Refinance & equity

When to refinance a mortgage: the break-even math, the waiting periods, and the reasons that have nothing to do with rate

The old rule of thumb said to refinance when rates fall a full point. It is a poor rule. Knowing when to refinance a mortgage comes down to three questions: what it costs, how much it saves each month, and how long you will keep the loan. Here is the math, the waiting periods by loan type, and the reasons to refinance that have nothing to do with rate.

Home State Bank mortgage teamCrystal Lake, IL · Appleton, WI · NMLS 478452Updated September 19, 20268-minute read

Should I refinance my mortgage? Start with the break-even

A refinance is a new loan with its own closing costs: appraisal, title work, recording, and lender fees. The refinance break-even point is how many months of savings it takes to earn those costs back. Divide the total closing costs by the monthly savings. If you expect to keep the loan longer than that, the refinance pays for itself. If you may sell or refinance again sooner, it does not.

The table below uses a hypothetical borrower in Crystal Lake who took a $310,000 30-year loan at an example rate of 7.25% two years ago and now owes about $304,000. The rates shown are round illustrations for the math only, not rates we are offering. Closing costs are assumed at $5,000.

Refinance break-even example: $304,000 balance, current principal and interest of $2,115, assumed closing costs of $5,000. All rates are hypothetical.
Example new 30-year rate	New principal and interest	Monthly savings	Months to break even
7.00%	$2,023	$92	About 54
6.75%	$1,972	$143	About 35
6.25%	$1,872	$243	About 21

The catch the break-even misses: resetting the clock

Monthly savings are not the whole story. If you are two years into a 30-year loan and refinance into a new 30-year loan, you have added two years of payments. Some of the monthly savings comes from stretching the debt, not from the lower rate. Over the full life of the loan, that can eat into what the lower rate saves.

There are two simple fixes. You can refinance into a shorter term, such as 20 or 15 years, and compare the lifetime interest. Or you can take the new 30-year loan and keep paying the old, higher amount, with the difference going to principal. The refinance calculator on our calculators page shows monthly savings, break-even, and the lifetime interest difference side by side, including the case where a shorter term costs more per month but saves more overall.

Reasons to refinance that are not about rate

Plenty of sound refinances happen at a similar rate, because the goal is something else.

Dropping mortgage insurance. If your home has appreciated and you have an FHA loan with mortgage insurance that does not cancel, refinancing to a conventional loan at 80% of the new value or less may remove it. On a conventional loan you may not need to refinance at all; see our guide on how to get rid of PMI.
Getting ahead of an ARM reset. If your adjustable-rate mortgage is approaching its first adjustment, moving to a fixed rate, or a new fixed period, removes the uncertainty.
Shortening the term. Moving from a 30-year to a 15- or 20-year loan raises the payment but can cut the total interest substantially.
Taking cash out. A cash-out refinance can fund a renovation or pay off higher-rate debt, but it replaces your whole first mortgage. Compare it against a second lien in our guide to a home equity loan vs. HELOC vs. cash-out refinance.
A divorce or co-owner buyout. Refinancing into one name removes the other person from the loan and can fund the equity buyout in the same transaction.

How soon can you refinance? Waiting periods by loan type

There is no single rule. Each loan program sets its own seasoning requirement, and lenders can add their own. These are the agency rules as published in 2026.

Agency seasoning rules for common refinance types
Refinance type	Minimum wait
Conventional rate-and-term (Fannie Mae limited cash-out)	No agency waiting period in most cases; individual lenders may set one
Conventional cash-out (Fannie Mae)	Existing first mortgage at least 12 months old, note date to note date, and at least one borrower on title for six months. The title rule is waived for property inherited or legally awarded in a divorce, and a delayed-financing exception exists for recent cash purchases.
FHA Streamline	At least six payments made, six months since the first payment due date, and 210 days since the closing date of the loan being refinanced
VA Interest Rate Reduction Refinance Loan (IRRRL)	The later of six consecutive monthly payments made or 210 days after the first payment due date

What a refinance costs

Expect many of the same line items you paid when you bought: an appraisal in most cases, title insurance for the new lender's policy, recording fees, and lender charges. You will also fund a new escrow account at closing, though the balance in your old escrow account is returned to you after payoff, so that part is largely a wash. Our guide to closing costs in Wisconsin and Illinois walks through the line items.

Be careful with a no-closing-cost refinance. The costs are real; they are either added to your loan balance or covered by a higher interest rate. That can still be the right choice if you expect to move within a few years, but run the break-even both ways.

When not to refinance

Sometimes the best advice we give is to keep the loan you have.

You expect to sell before the break-even month
You are deep into your loan, where most of each payment is already principal, and a new 30-year term would restart the interest-heavy years
The savings only appear because the term got longer
You would be rolling short-term debt, like a car loan, into 30 years of payments without a plan to pay it down faster
Your current rate is below today's market and all you need is cash; a HELOC or home equity loan leaves the first mortgage untouched
You have IHDA or WHEDA down payment assistance with a deferred or forgivable second; a refinance can make that balance due

How a local portfolio lender fits in

Because Home State Bank approves and services loans in-house, a refinance conversation starts with your actual loan, not a rate sheet. If you are self-employed, own a property that does not fit the agency box, or have an ARM coming up on its adjustment, we can look at conventional, FHA, VA, and our own portfolio options next to each other, and tell you plainly if none of them beats staying put.

Questions people ask

How much should rates drop before I refinance?: There is no fixed number. Divide your closing costs by the monthly savings to get the break-even in months. If you will keep the loan well past that point, even a half-point drop may be worth it on a larger balance. On a small balance, a full point may not be.
How soon can you refinance after buying a house?: A conventional rate-and-term refinance has no agency waiting period in most cases, though lenders may set one. A conventional cash-out refinance requires the existing mortgage to be at least 12 months old. FHA Streamline and VA IRRRL refinances require about seven months of seasoning and six payments made.
What is a good refinance break-even?: Shorter is better, and the right answer depends on your plans. Many homeowners look for a break-even of two to three years or less, but what matters is that it falls comfortably inside the time you expect to keep the home and the loan.
Should I refinance to a 15-year mortgage?: If the higher payment fits comfortably in your budget, a shorter term means far less total interest. If the payment would be tight, a 30-year loan with voluntary extra principal gives you much of the savings with a safety valve.
Can I refinance if I am self-employed?: Yes. Expect to document income with tax returns, and know that a portfolio lender may be able to use judgment where an automated system cannot. See our self-employed mortgage guide for what to gather.

Sources

This article is general information, not financial, tax, or legal advice, and not a commitment to lend. Program terms, limits, and rates change; confirm current figures with a loan officer. Home State Bank, N.A. NMLS 478452. Member FDIC · Equal Housing Lender.