Does the “1% Rule” Still Matter When Refinancing?
Mortgage rates have finally started to ease up after peaking above 7% earlier this year. And if experts are right, they may keep drifting down as the Federal Reserve continues cutting benchmark rates. That shift has already sparked a surge in refinancing applications, up 18% from this time last year. But with rates on the move again, many homeowners are asking: is now the right time to refinance?
What Is the 1% Rule, and Does It Still Apply?
For years, the so-called “1% rule” was a go-to guideline: you should only refinance if you can lower your mortgage rate by at least one full percentage point. The idea was that the savings from a 1% drop would cover your closing costs and make the effort worthwhile.
But in today’s market, that rule doesn’t fit everyone quite so neatly.
According to several mortgage experts cited in a recent MSN article, the decision to refinance depends on your unique situation: your current balance, interest rate, and how far along you are in your loan. Homeowners with larger loan amounts might see meaningful savings from even a half-percent drop, while those with smaller balances may need a full percentage point or more to justify the costs.
When a Smaller Rate Cut Can Still Pay Off
If you’ve only been in your mortgage for a few years, a modest rate cut might make sense. But if you’re ten or fifteen years in, extending the life of your loan might actually cost more in the long run. The key is to look beyond just the monthly payment and consider the total interest you’ll pay over time.
Another group that stands to benefit right now? Anyone who bought or refinanced during the past couple of years when rates were unusually high. Even a small rate improvement could translate into hundreds in monthly savings.
Other Smart Reasons to Refinance
And remember, refinancing isn’t only about chasing a lower rate. Some homeowners refinance to tap into home equity for renovations or debt consolidation, especially when credit card rates are hovering above 20%. Others may refinance to remove private mortgage insurance (PMI) if their home’s value has climbed, which can reduce monthly costs without even changing the rate.
The Bottom Line
The “1% rule” can be a helpful starting point, but it’s not a one-size-fits-all rule. Every situation is different, and the right move depends on your goals, loan size, and how long you plan to stay in your home.
If you’re curious about whether refinancing could make sense for you this fall, I’m happy to connect you with my trusted local lender or help you run the numbers. Sometimes a quick conversation can reveal options you didn’t even know you had.
Every move starts with a conversation
Let's talk! I’ve proudly served the Greater Richmond area as a full-time Realtor for more than 18 years, and I’ve called Virginia home for over 20.
My goal is simple: to help you reach yours.
Jason Burke
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