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Russian (RU) Sat, Sep 13, 2025, 12:30 PM 3 min read
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Many homeowners have locked in 30-year mortgages around 7% in the last three years, looking to refinance when interest rates turn lower. Some still hope a return to sub-3% rates is possible, given a decade around that level, but Neighbors Bank's new report is tossing cold water on that fantasy.
The report says that rates need to drop at least 0.75% from the original loan before the refinance saves money. Even then, homeowners need to hold the refi for around three years before overcoming the costs attached to the second loan. The holding period is even worse for a government-backed mortgage, sometimes taking up to six years to break even.
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A 15-year refi with a 0.5% rate cut works better, saving buyers over $1,500 in three years. A 30-year loan under the same terms keeps owners nearly $200 in the hole after the same period.
The report also looked at variations in costs and outcomes across the U.S. Loan amount, homeowners’ insurance, property taxes and title fees all impacted final savings and breakeven points. With those inputs, homeowners in just 10 states showed a net savings from a 0.5% lower refi after three years.
Closing costs, mortgage insurance, government-backed loan fees, break-even periods and average savings were calculated through equally rigorous data collection.
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The report says refinancing can still make sense despite financial hurdles. Homeowners may need to raise cash quickly and can access built-in equity through a cash-out refi. They can also balance their checkbooks more easily during stressful periods by lowering the monthly payment through a loan term extension. Switching from an adjustable-rate mortgage to a fixed-rate loan can also make monthly payments more palatable.
However, net profit requires at least a 0.6% rate decline to make sense for most homeowners. The average 2025 buyer posted a 25% down payment, according to Neighbors Bank, along with a 30-year term at 6.798%, a $386,339 loan and $5,458 in closing costs. With those metrics, a borrower taking a 0.25% rate cut will still be $2,424 in the red after three years and need more than five years to break even. A 0.5% reduction lowers the period to breakeven to 3.08 years.
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