The 0.75% rule, and why it's mostly wrong.
Every refi article opens with the same line: “Refinance when rates drop 0.75% below your current rate.” It's a useful starting point and a terrible decision rule. The honest framework looks at three things the rule ignores: your break-even month, your hold horizon, and how closing costs are funded. Get those right and the 0.75% number stops mattering.
What brings you here today?
Skip the rule. Run the numbers.
Five inputs, three outputs: your break-even month, your net lifetime savings, and a green/yellow/red verdict. The same logic an honest loan officer would walk you through — without the sales pitch.
Run your file through the framework.
Break-even at month 35
Green light. Refi looks like a green light. Your buffer of 62 months sits comfortably above the 24-month threshold.
Calculator assumes a fresh 30-year fixed term and ignores escrow, taxes, and insurance. Real quotes vary by credit, equity, and program. Use this for triage; bring real quotes to the final decision.
The 0.75% rule, steelmanned.
Before tearing it down, let's give the rule its strongest case. It's not nonsense — it's a simplification, and simplifications are useful when used correctly.
On a typical loan ($350K balance, 30-yr remaining), a 0.75% rate drop saves roughly $170/month in P&I. With closing costs around $8,000, you break even at month 47 — right around the four-year mark.
The rule's implicit assumption: most borrowers stay in their home at least four years after refinancing. If true, refinancing nets out positive.
It's memorable. It's a single number. It works as a screening filter — if rates haven't dropped 0.75%, don't even bother running the math, you're unlikely to win.
For the median borrower in median conditions, the rule produces decisions that are mostly correct. The problem isn't the rule itself. It's when borrowers apply it without understanding the assumptions behind it.
The assumptions nobody tells you about.
The 0.75% rule fails when the underlying assumptions don't hold. Here are five common cases where it gives the wrong answer — either making you wait when you shouldn't, or refinancing when you shouldn't.
Three numbers. That's the whole framework.
Skip the 0.75% rule. Run these three numbers instead. If all three line up, refinance. If any one fails, don't.
The framework in action.
Three real situations where the 0.75% rule and the honest framework give different answers. Each shows how the right framework finds the better choice.
Refi-timing questions, answered honestly.
Eight questions homeowners ask when running the math. Real answers, including the cases where conventional advice gets it wrong.
Mortgage rates and the Fed funds rate are different things. Mortgage rates track the 10-year Treasury yield, which moves on inflation expectations and economic data — not directly on Fed policy.
The 10-year can move before Fed announcements (anticipating them) or against the Fed (when markets disagree with policy direction). Borrowers who waited for the “next cut” in 2022 watched mortgage rates rise from 3% to 7% while the Fed was still tightening.
If the math works today, refinance today. If you're wrong about future rates, you can refinance again. Two well-timed refis often beat one perfectly-timed refi.
Yes — with a tradeoff. A no-cost refi means closing costs are funded by either: (a) lender credits at a slightly higher rate (typically 0.125–0.25% above the par rate), or (b) rolling costs into the loan principal.
Option (a) is genuinely “no-cost” out-of-pocket and changes the break-even math dramatically — break-even becomes month 1. Option (b) is “no-cost-at-closing” but you finance those costs at the new rate for 30 years. Choose option (a) when available.
Three honest checks: (1) Job stability. Likely promotion or relocation in the next 3 years? (2) Family stage. Empty-nesters often downsize earlier than expected. New babies often trigger upsizing. (3) Neighborhood trajectory. Are you outgrowing the area, or settling in?
If you're uncertain, use the lower bound. If you might move in 3 years or might stay 8, plan for 3. The framework rewards conservatism — the cost of refinancing too early is small if you stay; the cost of refinancing too aggressively when you move is large.
Only if you let it. Most borrowers refi into a fresh 30-year for the lowest payment. But you can refinance into a 20-year, 15-year, or even custom-length loan to match (or shorten) your remaining term.
Math example: 8 years into a 30-year original loan with 22 years remaining. Options: (a) refi into new 30-year — lowest payment, but you've added 8 years of interest. (b) refi into 22-year — matches remaining term, captures the rate savings without extending. (c) refi into 15-year — bigger payment, but pays off 7 years earlier and saves significant total interest.
Option (b) is often the right answer for borrowers focused on rate savings without trading away years of payments already made.
Yes — in three specific cases:
(1) FHA to Conventional to drop MIP. Eliminating $150–$300/month of permanent MIP can offset a 0.25–0.50% rate increase.
(2) Cash-out for high-rate debt consolidation. Refinancing $400K at 7% into $440K at 7.25% to pay off $40K of credit card debt at 22% is a winning trade.
(3) ARM about to reset. If your 5/1 ARM is about to reset to a much higher rate, refinancing into a fixed rate — even slightly higher than your current ARM teaser — locks in long-term certainty.
Different rules apply. Streamline programs (FHA Streamline, VA IRRRL) have much lower closing costs and skip appraisal/full underwriting. Break-even can be reached in 8–15 months instead of 36–48 months.
The 0.75% rule especially fails here — with break-even at month 12, even a 0.5% rate drop wins for nearly any hold horizon. Streamline programs are the easiest refi wins available when you're currently in an FHA or VA loan.
Probably not. With 5 years remaining, most of your monthly payment is principal — the interest savings on rate reduction are small. Plus closing costs of $5K–$8K against modest savings = break-even often beyond your remaining loan life.
Exception: if you can find a no-cost refi (lender credits, no out-of-pocket), even small savings on the last 5 years are pure profit. Run the numbers in the calculator before assuming it's not worth it.
Three situations where refinancing is almost always wrong:
(1) Within 12 months of moving. Break-even won't complete; closing costs are pure loss.
(2) After major credit damage. A bankruptcy, recent foreclosure, or 90-day late payment will price your refi rate higher than your current rate. Wait until credit recovers.
(3) When rolling closing costs into the loan to chase tiny savings. Financing $8K of closing costs over 30 years at 6.625% costs $13,150 in interest — you'll pay $21K total to save $50/month. Almost never worth it.
Get a refi quote based on your file.
Sixty-second short app — no SSN, no hard credit pull. We'll compute break-even, hold-horizon math, and verdict against your specific situation. If the math says don't refinance, we'll tell you that.