Is a 1% Drop Enough to Refinance?

You’ve probably heard the old rule of thumb: “You shouldn’t refinance unless interest rates drop at least 1%.”

But is that actually true in today’s market?

If you bought your home when rates were 6.75%—or anywhere in that 6–7% range—and you see them dipping into the low 6s or high 5s, you’re likely wondering if that move is enough to make a refinance worth the effort.

After more than 25 years in the mortgage industry, here’s my honest answer: Sometimes yes, sometimes no. It’s less about a “magic number” and more about your specific financial strategy.

Where Did the “1% Rule” Come From?

The 1% rule is a general guideline that became popular because a full percentage point drop usually creates enough monthly savings to offset closing costs quickly. It’s a safe starting point, but it’s certainly not a law.

When a Smaller Drop (0.50%–0.75%) Still Makes Sense

There are several scenarios where a modest rate improvement is actually a very smart move:

• You Have a Large Loan Balance: The math changes when your mortgage is larger. A 0.50% drop on a $700,000 loan is significantly more impactful than a 0.50% drop on a $250,000 loan.

• Removing Mortgage Insurance: This is a big one. If you purchased with an FHA loan or a low-down-payment conventional loan, and your home has gained value, we might be able to eliminate your monthly mortgage insurance. Sometimes the savings from removing that insurance outweigh the interest rate difference itself.

• You’re Staying Long-Term: If this is your “forever home,” your break-even point is more important than the rate. If you recover your costs in 18 months and plan to stay for 10 years, even a 0.75% improvement is a win.

• Restructuring Your Debt: Maybe the goal isn’t just a lower payment. Maybe you want to move from a 30-year to a 15-year term, or you want to access equity for home improvements or to consolidate higher-interest debt.

Focus on the “Break-Even,” Not Just the Rate

Instead of asking if the rate dropped enough, the better question is: “What is my break-even timeline?”

For example: if a refinance costs you $5,000 but saves you $200 a month, your break-even is 25 months. If you plan to be in the home for five more years, that’s three years of pure savings.

When we work together, I don’t just give you a quote. I provide a Total Cost Analysis that compares your current loan to new scenarios side-by-side. We’ll look at the amortization schedules to see exactly how much interest you’ll save over the next few years so you can make an educated decision.

The Bottom Line

Refinancing is a financial strategy, not a reaction to a headline. Especially here in Washington—where home values in King, Pierce, and Snohomish counties have shifted—local market conditions matter just as much as national news.

If you bought at 6.75% and see rates at 6.00% (or lower!), it is absolutely worth a conversation. We’ll run the numbers to see if it makes sense to move now or if patience is the better play.

Related Resources

• Refinance Options Overview
• Mortgage Programs for Refinancing
• Get a Personalized Rate Quote
• Sign-up for Rate Watch
• Apply for a Mortgage
• Mortgage Refinance Guide for 2026