Average mortgage rates dropped throughout 2025, with APRs on home loans down from about 7% at the beginning of last year to the low 6% range in December and into January. Some experts believe that downward trajectory might continue in 2026, but there is no certainty as to how low rates might go.
However, if you bought a home in the last couple of years, the rate drop of about a percentage point might have you thinking: Is now a good time to refinance my mortgage?
Learn more about how mortgage interest rates could change in 2026, the questions you should be thinking about before you decide to refinance and whether it pays to wait out further rate drops that may occur this year.
[Read: Best Mortgage Lenders]
Where Mortgage Rates Are Headed in 2026
Assuming inflation continues to cool and labor softens as expected, mortgage rates could move into the 5.5% range by midyear, says Jeff DerGurahian, chief investment officer and head economist at loanDepot. “If you are one of the millions of homeowners who purchased at the high rates of the last few years, you will likely find 2026 an attractive window to refinance.”
Amid falling rates, real estate platform Redfin is forecasting that U.S. mortgage refinance volume may increase by more than 30% this year. Considering that about 21% of mortgaged homeowners are carrying a loan with a 6% or higher rate as per Federal Housing Finance Agency data, the opportunity to lower that rate — and in turn, their monthly payment — can be an attractive option.
Of course, there is a lot more to refinancing than seeking a modest rate reduction.
[Read: Best Mortgage Refinance Lenders.]
Who Should Consider Refinancing?
Before you refinance your mortgage, you first need to determine if you meet the qualifications for approval and what your motivation is. Then, calculate the home loan numbers to decide whether it makes sense for you.
If Your Goal Is to Lower Your Monthly Bill, Lower Rates Are Key
One of the popular motivators for refinancing is the ability to reduce the monthly payment amount owed or the total cost of the loan over time. If you can score a lower interest rate than you’re currently paying, that can go a long way toward making the numbers work for you, but it’s only one piece of the puzzle.
Be sure to calculate your break-even point, the point when the savings from refinancing equals the costs.
“Traditionally, refinancing was considered worthwhile with about a one-percentage-point reduction, but that’s changing,” says DerGurahian. “With today’s higher-priced homes carrying larger loan balances, even a half-point drop can deliver meaningful savings.”
It just comes down to math. “The larger your mortgage, the smaller the rate drop needed to offset your closing costs,” he adds.
Should You Wait for the Rate to Drop More?
Trying to time a refinance is like trying to time the stock market. It’s hard to predict, and there is always some risk involved. “It’s my advice that refinancing should be based on today’s reality versus tomorrow’s speculation,” says Loren Fellows, senior vice president, mortgage production manager at Johnson Financial Group in Madison, Wisconsin. “If the rate available today offers meaningful savings after accounting for closing costs, it’s wise to lock that rate in now.”
She also points out that holding out for a projected lower rate could mean missing real progress today. For instance, let’s say you lock in a refinance rate that would lower your mortgage payment by $300. If you wait six more months and the rate doesn’t drop, that’s $1,800 you could have used to recoup your closing costs.
Meanwhile, if there is another significant rate drop in a year or two, it doesn’t mean you can’t cash in. “Should rates drop in the future, you can always refinance again,” says Fellows.
Ultimately, weigh potential savings against the certainty of locking in a lower payment sooner, says DerGurahian. “Locking in a lower payment sooner provides certainty, while waiting for rates to fall further could increase savings, but carries risk if economic conditions shift or fees rise.”
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Other Refinancing Benefits to Consider
“With a refinance, you have to look at the whole picture to see if it is worth it,” says Jeremy Schachter, branch manager at Fairway Independent Mortgage in Phoenix. For example, your past credit status played a big role in the rate you currently have, but your current credit determines the rate you may qualify for now. “If you had worse credit when you purchased a home, it may be a great time to access a refinance,” says Schachter.
Related to that, sometimes a refinance can help you move into a more favorable loan program. “If you purchased your home as an FHA loan with mortgage insurance and now you have enough equity to remove the mortgage insurance, which in some cases with FHA lasts forever, that would be a great advantage,” says Fellows.
Some people also refinance to shorten their loan term. “If maximum monthly savings is the priority, a longer term helps. If minimizing total interest is the goal, keep the term as short as possible,” says Fellows.
In other cases, people use refinancing as a tool to access cash. “You may also consider tapping into your home’s equity through a cash-out refinance for large expenses like debt consolidation or renovation,” says DerGurahian.
Is 2026 the Right Time to Refinance?
The short answer is that no matter the economic conditions at the moment, it’s your personal financial situation that will drive your refinance decision. For instance, someone carrying a mortgage from the early pandemic days that’s under 4% might find it harder to justify refinancing in 2026. The real litmus test to follow, says Fellows, is this: “If refinancing today creates meaningful savings, it’s the right time to begin making those savings now.”
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Mortgage Rates on the Decline: Should You Refinance in 2026? originally appeared on usnews.com
