When Is the Right Time To Refinance Your Mortgage?

3/25/2026

Typically, falling interest rates are the first signal that prompts homeowners to question whether they can secure a better mortgage deal. And while there’s no universal rule, many homeowners look for a noticeable drop in rates – often around three-quarters of a percentage point – as a starting point for considering a refinancing. Even then, though, the interest rate is just one part of the equation. Before making any major decisions, here are three key financial considerations to weigh.

Mortgage Rates: January 2000 – January 2026¹

Consideration No. 1: Loan Terms

For many homeowners, the main motivation of refinancing is potentially securing a lower monthly mortgage payment. It’s helpful to remember, though, that reducing your payment often means extending the length of your loan, which can lead to paying more interest over time. To offset that effect, consider making the same payment amount on the same schedule – even after refinancing. This way, you benefit from the lower interest rate and accelerate the original payoff date, which can maximize your long‑term savings. See how it works:

*Totals may vary slightly due to rounding and final payment adjustments.

As seen in the flow chart above, confidence that you can maintain your original monthly payment is key – and can potentially save you thousands in interest.

Consideration No. 2: Closing Costs

When you refinance your mortgage, be sure to keep an eye on the extra costs that come with the process, including an appraisal, a loan application fee and a title search fee, all of which are most likely required by the lender. Together, these costs can total up to 2-5% of the loan amount. In some situations, lenders may let you fold these expenses into the new loan instead of paying them out of pocket. However, choosing this option means paying that amount plus interest on it over the life of the loan. This would reduce or even eliminate the financial benefit you were hoping to gain from refinancing.

Consideration No. 3: Taxes

There are notable tax considerations when refinancing your mortgage as well. If your original mortgage was taken out before 2018, you may still qualify for the older rule that lets you deduct interest on up to $1,000,000 of mortgage debt – as long as your refinance doesn’t increase your loan balance above what you originally owed. If your mortgage started after 2017, the limit is lower at $750,000, and refinancing will generally not change how much interest you can deduct.

Taxes can play a bigger role, however, if you complete a “cash out” refinance, where you replace your existing mortgage with a new one for more than you owe and take the difference in cash. From a tax perspective, that additional borrowing is treated much like home equity debt, meaning interest on that portion is generally not deductible unless the funds are used to improve the home. This also applies to costs that are rolled into the new loan, such as closing expenses.

Ultimately, a refinance is most effective when you consider both its impact on your monthly payment today and the total amount (including interest) you’ll pay over your lifetime. In partnership with our team, you can decide whether refinancing will strengthen your long-term plans.

Editor’s Note: This article was originally published April 2019 and was updated March 2026 with more current information.

This information has been developed by a member of Baird Wealth Solutions Group, a team of wealth management specialists who provide support to Baird Financial Advisor teams. The information offered is provided to you for informational purposes only. Robert W. Baird & Co. Incorporated is not a legal or tax services provider and you are strongly encouraged to seek the advice of the appropriate professional advisors before taking any action. The information reflected on this page are Baird expert opinions today and are subject to change. The information provided here has not taken into consideration the investment goals or needs of any specific investor and investors should not make any investment decisions based solely on this information. Past performance is not a guarantee of future results. All investments have some level of risk, and investors have different time horizons, goals and risk tolerances, so speak to your Baird Financial Advisor before taking action.

¹ Federal Reserve Bank of St. Louis. 2026. “30-Year Fixed Rate Mortgage Average in the United States.” https://fred.stlouisfed.org/series/MORTGAGE30US