Want to refinance your house in early 2026? What you need to know.

As 2026 approaches, homeowners who locked in higher mortgage rates over the last several years might wonder if the new year will finally be the time to refinance their home loans. With inflation continuing its gradual cooldown, mortgage rates ticking lower, and several closely watched Fed meetings scheduled for the end of 2025 and the beginning of 2026, there’s much to keep your eye on. If you’re among the refinance hopefuls, here’s what it all means and might mean for you.

First of all, mortgage rates remain more closely tied to movements in the bond market than the Federal Reserve’s benchmark interest rate. However, that doesn’t mean Fed policy doesn’t play an indirect role in shaping expectations.

The Federal Open Market Committee (FOMC) is scheduled to meet Dec. 9-10, 2025, followed by additional meetings in 2026 scheduled for Jan. 27-28 and March 17-18. These meetings matter because mortgage rates often adjust in anticipation of what the Fed might do (keep rates steady or make cuts) even more than they react to what the Fed actually announces regarding policy decisions in the meeting.

Some things to keep an eye on in late 2025-26 if you’re interested in refinancing: inflation readings, employment figures, and broader financial market stability. All of these contribute to where mortgage rates might head next.

Heading into 2026, the market is watching whether inflation will remain near the Fed’s 2% target. As of September, the last time the government calculated the Consumer Price Index (CPI), the nation’s annual inflation rate was 3%. If inflation continues to ease, bond yields could also cool off, creating an environment favorable to lower mortgage rates.

Even small rate dips could make refinancing attractive for borrowers who bought between 2022 and 2024. That said, many homeowners still face affordability constraints, especially if their equity hasn’t increased enough to meet lender requirements or if closing costs on a refinance pose a significant financial hurdle.

So, is 2026 your year to refinance your mortgage? It very well could be, and the best advice out there is to close out 2025 with a clear understanding of your financial baseline, according to David Askew, managing director and senior wealth advisor at Mercer Advisors.

“First, evaluate the impact of the interest rate change on your monthly cash flow,” Askew said via email. Even a slight reduction can help ease a tight household budget. But before signing on the dotted line, it’s important to confirm that the refi savings add up to justify the effort.

Askew said a homeowner who took out a 30-year fixed-rate mortgage for $500,000 in 2022 at 7% could see meaningful savings even with a modest rate drop. If rates drop to 5.75% in 2026 after only 48 months of payments, refinancing could bring their monthly payment down from $3,327 to $2,786, freeing up nearly $550 in the borrower’s monthly budget.

Use the monthly mortgage payment calculator below to see how different mortgage rates and terms would affect your monthly payment should you refinance.

Factor in closing costs and loan fees

Additionally, you must account for closing costs in the refinance, which typically range from 2% to 6% of the total loan amount. In this case, the borrower refinanced $477,373 of the original $500,000, adding closing costs of roughly $9,547 to $28,642.

Ask yourself: Does it make sense to pay these costs or stick with my current, albeit higher, mortgage rate?

If you plan on staying in your home for the long haul, refinancing usually makes sense. You’ll save thousands in interest costs over the life of your mortgage loan. If you can roll closing costs into your loan, you have less out-of-pocket stress, but it’s also a move that could increase your monthly payment and interest paid over time.

However, if you plan to stay in your home for a shorter term, the math becomes even more important in determining whether it makes sense to refinance your mortgage. Gary Schlossberg, a global strategist with Wells Fargo Investment Institute, noted in an email interview that while homeowner tenure varies by region, most homeowners stay in place for roughly 12 years on average. Those expecting to relocate well before that may struggle to reach their break-even point.

The break-even point on a mortgage refinance is the time it takes to regain the cost of refinancing. You can calculate your breakeven point using a simple formula:

Total refinance costs / monthly savings = refinance break-even point (in months)

Using that same $500,000 mortgage example from above, say your refinancing costs total 2% of your loan balance, or $9,547, and your monthly savings are $550. Your break-even point is just over 17 months away. However, if your closing costs total 6% of your loan, or $28,642, your break-even point extends to 52 months – nearly triple that of the refinance with lower costs.

Before deciding whether to refinance your home in 2026, consider that your emergency savings play a significant role in this conversation. Borrowers without adequate savings should think carefully before moving forward with a refi if doing so would wipe out the cash they rely on for unexpected expenses or job instability.

Experts say that three to six months’ worth of expenses in savings is a good target for an emergency fund. If refinancing would tap into this cash, evaluate how long it would take you to rebuild up to a level you’re comfortable with. Every month that your savings fall below your ideal target leaves you increasingly exposed to life’s uncertainties.

Gather your most recent mortgage statement and note your balance, interest rate, remaining term, and whether you’re paying mortgage insurance. This gives you the baseline you’ll use to compare refinance offers.

Rates and closing costs vary widely, even on the same day. Ask at least three lenders for a written mortgage Loan Estimate so you can compare interest rates, fees, and projected monthly payments side by side.

Divide your total closing costs by your estimated monthly savings to calculate how long it will take to recoup the up-front expense. If you don’t expect to stay in the home past that point, refinancing might not be the best move.

Consider whether you want to keep the same term, shorten it, or extend it. A shorter-term loan, such as a 15-year fixed-rate mortgage, can save you on interest but may increase your monthly payment. Extending the term lowers your payment but increases long-term interest — a trade-off some borrowers are comfortable making if cash flow is tight.

With major Fed meetings scheduled for December 2025 and January 2026, markets could shift quickly. Ask each lender how long their mortgage rate locks last, whether extensions or rate float-downs are available, and how pricing changes if you need additional time to close.

Look at the total cost over time, not just the monthly payment. If you’re switching terms or rolling closing costs into the loan with a no-closing-cost refinance, the long-term numbers can look very different and should align with your broader financial goals.

Once you’ve determined that refinancing makes financial sense, it’s worth thinking about how the new loan fits into your bigger financial picture. For some borrowers, a lower monthly payment frees up room to pay down high-interest credit cards, auto loans, or student debt — a shift that may offer more meaningful long-term savings than the refinance alone.

Homeowners should also consider how a refinance affects their future flexibility. A lower monthly mortgage payment can make it easier to weather income changes, job transitions, or unexpected expenses. For homeowners who expect to stay in their property for a long time, locking in a stable payment with a fixed-rate loan compared to an adjustable-rate mortgage can also add predictability to their financial plans.

Finally, refinancing doesn’t have to be a one-and-done decision. If rates fall further later in 2026, you can run the numbers again and refinance a second time, as long as the savings outweigh the closing costs and align with your long-term goals.

Refinancing your mortgage can be a smart move, but only if it genuinely improves your financial picture. The biggest question is whether the new interest rate and payment help your overall financial picture — not just on paper, but in your actual monthly budget. Homeowners often refinance to lower their payments, shorten their loan term, or tap into equity with a cash-out refinance, but the long-term savings must outweigh the closing costs. It also matters how long you plan to stay in the home. For some borrowers, a refi can free up cash flow and reduce stress. For others, it may not pencil out.

Predicting rates is tricky, but most economists expect any mortgage rate decreases in 2026 to be gradual rather than dramatic. Much of it depends on where inflation settles and how the bond market responds to the Fed’s early-year decisions. If price pressures continue to ease and investor confidence stabilizes, rates could drift lower from today’s levels, but probably not back to the ultra-low levels of the early 2020s. Homeowners who locked in rates above 7% when they bought their houses may still see meaningful opportunities next year, even if the rate drop in 2026 isn’t massive.

It’s understandable to hope for a return to the ultra-low mortgage rates we saw in 2020 and 2021, but most economists say those days are likely behind us for now. Rates that low were the result of an extraordinary mix of pandemic-era stimulus, economic uncertainty, and aggressive Fed intervention — conditions that aren’t expected to repeat anytime soon. Could rates drift lower from where they are today? Absolutely. But mortgage rates dropping below 4% again would require a major (and not necessarily favorable) economic shift, and experts generally aren’t predicting that in the foreseeable future.

Laura Grace Tarpley edited this article.