The Refinance Window Is Open — But Is It Right for You?
With 30-year fixed rates now hovering around 5.95% — their lowest level since September 2022, according to Freddie Mac — a massive pool of homeowners who bought or refinanced at higher rates over the past three years are now in a position to save real money.
But refinancing isn't free, and it doesn't make sense for everyone. Here's a clear-eyed guide to evaluating whether a refinance is worth it for your specific situation.
Who Should Be Considering a Refinance Right Now
A refinance is most likely to make sense if you fall into one of these categories:
- You locked in at 6.5% or higher in 2023 or 2024 — a rate reduction of 0.5%+ can save hundreds per month
- You have an adjustable-rate mortgage approaching its reset date — locking into a fixed rate at today's levels provides stability
- You want to eliminate PMI — if your home has appreciated enough that you now have 20%+ equity, refinancing into a conventional loan without PMI can reduce your payment
- You need to access equity — cash-out refinancing at today's rates is significantly cheaper than HELOCs or personal loans
- You want a shorter term — dropping from a 30-year to a 15-year at 5.09% accelerates equity building dramatically
The Break-Even Calculation
Every refinance has closing costs — typically 2-3% of the loan amount in Colorado. The key question is: how long does it take for your monthly savings to recoup those costs?
Example: $500,000 loan balance
- Current rate: 7.0% → Payment: $3,327/mo
- New rate: 5.95% → Payment: $2,980/mo
- Monthly savings: $347
- Estimated closing costs: $12,500
- Break-even point: 36 months (3 years)
If you plan to stay in your home for at least 3 years beyond the refinance, this example produces significant long-term savings — over $112,000 over the remaining life of a 30-year loan.
Rate-and-Term vs. Cash-Out: Which Is Right?
Rate-and-Term Refinance
This is the straightforward play: replace your current mortgage with one at a lower rate, same or shorter term, no cash out. Benefits include:
- Lowest available rates (typically 0.125-0.25% lower than cash-out)
- Lower closing costs
- No change to your loan-to-value ratio
Cash-Out Refinance
If you've built significant equity, a cash-out refinance lets you tap it at mortgage rates rather than higher-interest alternatives. Common uses include:
- Home renovations that increase property value
- Consolidating high-interest debt (credit cards at 20%+ vs. mortgage at 6%)
- Funding investment opportunities
- College tuition or major expenses
In Colorado, where home values have appreciated 20-40% since 2020 in many markets, homeowners are sitting on substantial equity they may not realize they can access.
The 15-Year Option
With 15-year rates near 5.09%, homeowners with sufficient income have an exceptional opportunity to accelerate their path to being mortgage-free. Yes, the monthly payment is higher, but the total interest savings are dramatic.
On a $400,000 loan:
- 30-year at 5.95%: Total interest paid = $459,605
- 15-year at 5.09%: Total interest paid = $167,082
- Savings: $292,523
Common Refinance Mistakes to Avoid
- Restarting a 30-year clock. If you're 5 years into your current mortgage, refinancing into a new 30-year term means 35 total years of payments. Consider a 25-year or 20-year term instead.
- Ignoring closing costs. A slightly lower rate doesn't help if closing costs eat up years of savings. Always calculate break-even.
- Cash-out for consumption. Using equity for depreciating assets (cars, vacations) erodes your net worth. Use it for investments that generate returns.
- Not shopping lenders. Rates and fees vary significantly between lenders. Get at least 2-3 quotes.
How Cedar Home Loans Can Help
We offer a free, no-obligation refinance analysis that shows you exactly what your new rate, payment, and savings would look like — including all closing costs. No guessing, no pressure.
Request your free refinance analysis or call us to discuss your options. With rates at a 3-year low, the window to save may not stay open indefinitely.
