November 25, 2025
Is now the right time to refinance your mortgage?
With a Wells Fargo expert as your guide, explore the pros, cons, and costs of refinancing in today’s market.
Key takeaways
- As interest rates vacillate, so does interest from people looking to refinance their mortgages.
- Refinancing is a complex financial transaction, and talking with a mortgage banker can help you understand your options.
- The decision to move forward or not ultimately comes down to personal finances and future plans.
Refinancing is having a renaissance.
With interest rates hovering at year-over-year (YoY) lows, consumers are once again trying to find out if refinancing is right for them. According to the Mortgage Bankers Association (MBA), the Refinance Index was up 147% YoY for the week ending on November 7, 2025.
Figuring out if or when to refinance your mortgage is complex. But in the end, it comes down to your personal situation and is influenced by several factors, including:
- The current interest rate on your mortgage
- The current mortgage rates in the market
- Your future plans for the home
Eric Gotsch, Mortgage Retail Sales senior manager at Wells Fargo, believes talking to a mortgage banker is a crucial step in the process.
“You’ll get one-on-one advice tailored to your unique financial situation,” Gotsch said. “Sure, online calculators can be helpful, but a mortgage banker can walk you through the actual numbers and explain your options in detail. They’ll help you see exactly what refinancing could mean for you, making it easier to decide if it’s the right move.”
Do the math
Your current interest rate being lower than the current market rate doesn’t mean you shouldn’t refinance. There are advantages to consider from refinancing if your household debt is significantly more than your current mortgage.
Figure out what other debt you have — consumer debt, car loans, student loans, credit cards, home equity lines of credit, etc. — and calculate your monthly household weighted average. There are online calculators and tools you can search for to help find your weighted average.
“In this situation, a cashout refinance mortgage at a slightly higher interest rate could provide relief to your household’s total monthly debt service payment,” Gotsch said. “If your weighted household average interest expense is 12%, then a 7% mortgage that consolidates all your debt into one payment may be a better situation, as long as it is not done habitually. A borrower should always keep in mind that their home is collateral against any residential mortgage.
ARMs have a set interest rate for an introductory period and then adjust periodically. The interest rate and annual percentage rate (APR) may increase at the end of the initial fixed-rate period, and rate adjustments are tied to a market index used for the loan.
“If your ARM is about to adjust in rate in the next six to 18 months, this might be a good time to lock into a fixed rate, depending on the specifics of your mortgage,” Gotsch said. “We’ve found that a lot of people don’t want the potential volatility and variability of fluctuating rates.”
What is refinancing?
Refinancing is when a mortgage holder pays off an existing loan with a new loan. The process for refinancing is similar to obtaining a mortgage, since you may encounter many of the similar procedures and types of costs the second time around.
By refinancing, you may be able to:
- Lower your interest rate
- Adjust the length of your mortgage
- Move from an adjustable-rate mortgage (ARM) to a fixed-rate mortgage
- Get an ARM with better terms
- Cash out the equity built up in your home
When is the right time to refinance?
“The No. 1 question is probably, ‘Should I wait until rates go lower?’” said Gotsch. “The correct answer is that if you can benefit from a refinance today, you should consider it. You can likely refinance again if the rate goes even lower in the future because, just like the stock market, it’s almost impossible to pick the absolute bottom.”
You should always talk with a mortgage consultant at the financial institution of your choice before deciding if you can benefit from refinancing.
Why refinancing might make sense right now
According to the MBA, the contract rate on a 30-year mortgage fell seven basis points near the end of October, closing at a one-year low of 6.3% on the week that ended on October 24.
“If you’ve been watching the headlines, you’ve probably noticed a big uptick in people looking to refinance their mortgages lately,” said Gotsch. “Most of the folks jumping on this opportunity are those who have locked in rates above 7% over the past couple of years. On the other hand, homeowners who’ve been sitting on those super-low rates from years past aren’t really feeling the need to make a move right now.”
If you’re currently in a fixed-rate loan and are considering refinancing to a lower-rate, fixed-rate loan, a common rule of thumb is to consider refinancing when rates are 1% to 2% below your current mortgage rate, but it really depends on your situation.
“Because refinancing comes with closing costs, you need to figure out your break-even point,” Gotsch continued. “Your mortgage banker can help you do this, but basically the break-even point is the time it takes your monthly savings to cover the closing costs. If you plan to sell your home before that break-even point occurs it may not be worth refinancing.”
Key factors to consider before refinancing
The 10-year Treasury rate (or yield) is the interest rate on U.S. Treasury securities with a constant maturity of 10 years. It represents the return investors earn for holding a U.S. government bond for 10 years and also serves as a benchmark for other interest rates driven financial products.
“There’s always a lot of hype around when the Federal Reserve makes moves on interest rates. That’s when media chatter is at its loudest,” said Gotsch. “That’s great, but those are short-term interest rates; mortgages track more closely to the 10-Year Treasury yield.”
The interest rate on your mortgage is tied directly to how much you pay on your mortgage each month, and lower rates usually mean lower payments.
A recent study by Apollo, using data from the Federal Housing Finance Agency, shows that 20% of all mortgages in the United States have an interest rate above 6%.
“I don’t think we’re in a necessarily exciting territory when you look back at rates over the last 12 months,” said Gotsch, “but we are finally getting there.”
7 refinancing mistakes to avoid
Miscalculating the total cost of a refinance
- Refinancing includes closing costs and fees for things like title insurance and appraisal. Compare overall savings versus expenses before committing and be sure to factor them into your decision.
Ignoring prepayment penalties
- Check your current mortgage for penalties that could offset refinancing benefits.
Overlooking loan term changes
- Lower monthly payments often mean a longer term, which increases total interest paid.
Failing to review your credit score
- Poor credit can lead to higher rates and possibly fewer options.
Delaying documentation preparation
- Gather mortgage statements, tax returns, and bank records early to avoid delays.
Falling for scams
- Avoid “foreclosure rescue” or “loan modification” scams. Verify lenders and never sign over property rights. The federal government does not provide grants for refinancing, so beware of fraudulent claims.
Ignoring appraisal inaccuracy
- An incorrect appraisal can affect your loan terms. Request a review if you suspect any errors.
For more information, visit Wells Fargo’s mortgage learning and education center.
FAQs
“Paying discount points should be figured into this,” Gotsch said. “It’s only worth it if you plan to stay in your home long enough to pass the break-even point where the interest savings from the lower rate outweigh the upfront costs.”
“Shortening your term could be a good option to save a lot of money over time if you can comfortably afford it,” said Gotsch. “A shorter term means you pay less interest overall and pay off your home faster, but it increases your monthly payment. When it comes to switching from a fixed-rate mortgage to an ARM, it’s probably not the most appealing option at the moment. Right now, ARMs are only slightly lower than fixed-rate mortgages, so there isn’t much of a benefit to making that move.”
“Applying for a mortgage can affect your credit,” Gotsch said, “but the impact is usually minor and temporary.”
A hard inquiry, which happens when a lender performs a thorough review of your credit for a mortgage preapproval or application, can slightly lower your score. However, multiple inquiries for the same type of loan within a short window (about 14 to 45 days) are generally treated as a single event, minimizing the impact.
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