What is Refinance Lean?
A refinance lean is a directional view of whether refinancing a mortgage today likely pays off, based on the rate gap, expected time in the home, remaining loan term, closing-cost tolerance, refinance goal, and how your credit profile has changed since the original loan.
The Formula
Lean Toward Refinance = (Rate Gap >= 0.75%) + (Time in Home > Break-Even) + (Workable Closing Costs)
Rate gap and time-in-home are the two heaviest signals; without both, the break-even arithmetic rarely works regardless of secondary motivations.
Worked Example
A homeowner with a 6.5% mortgage, current available rate around 5.5%, 12 years left on the loan, plans to stay 7+ years, can pay closing costs out of pocket, credit score has improved 30 points since origination.
- Rate gap: 1.0%, materially favorable
- Time in home: 7+ years, well beyond typical 24-30 month break-even
- Remaining term: 12 years, enough to compound the savings
- Closing-cost tolerance: out-of-pocket, keeps math clean
- Goal: lower monthly payment
- Credit: improved 30 points, opens better pricing tier
📌 Strong lean toward refinancing now. Get 2-3 quotes from competing lenders to confirm the rate and lock; written break-even should be under 30 months.
Why This Matters
Refi math is highly time-sensitive
Mortgage rates can move 0.25-0.5% in a single week. A favorable refi window often closes within months; once identified, getting quotes and locking is the right speed.
Closing costs determine break-even
Refinance closing costs typically run 2-5% of the loan balance. Rolling them into the new loan reduces immediate cash hit but stretches the break-even point and reduces lifetime savings. Out-of-pocket payment usually wins long-term.
Term reset is a hidden cost
Refinancing a mortgage with 18 years remaining into a new 30-year term lowers the monthly payment but adds 12 years of interest payments. A shorter-term refi (15 or 20 years) preserves payoff timeline and typically qualifies for a lower rate, compounding the benefit.
Common Mistakes
❌ Refinancing for a 0.25% rate drop
Below about 0.5% rate reduction, closing costs rarely justify the refinance unless you are also resetting the term or pulling cash out for a high-leverage purpose. The math turns negative quickly at small rate gaps.
❌ Cash-out refinancing for discretionary spending
A cash-out refi raises the loan balance and lengthens the interest term on the new dollars. It can make sense for consolidating much higher-interest debt or for a value-adding home improvement; for discretionary spending it almost never pencils out.
❌ Only getting one lender quote
CFPB research shows that borrowers who compare at least 3 lender quotes save an average of $1,500 over the life of the loan compared to those who accept the first offer. Rate, points, and closing-cost structures vary enough between lenders that a single quote leaves money on the table.
Industry Benchmarks
| Category | Good | Average | Poor |
|---|---|---|---|
| Rate gap that typically justifies refi | Over 1.0% | 0.75-1.0% | Under 0.5% |
| Typical break-even on refi | Under 24 months | 24-36 months | Over 48 months |
| Closing costs as percent of loan | Under 2% | 2-5% | Over 5% |
Source: Mortgage Bankers Association Weekly Applications Survey and Freddie Mac Primary Mortgage Market Survey
Benchmark data sourced from Mortgage Bankers Association Weekly Applications Survey and Freddie Mac Primary Mortgage Market Survey.