To Refi Or Not To Refi? Advisors Say It Depends
In 2025, the Federal Reserve cut the federal funds rate by 25 basis points three times. Whether more reductions will follow in 2026 remains to be seen, of course. But either way, mortgage lenders have seized the moment, offering refinance deals that may be too good to be true.
Mortgage rates typically follow the bond market and other macroeconomic factors, not the Fed’s short-term-funds rate. Nevertheless, advisors say there may be some good refi opportunities now, depending on a number of client-specific variables.
“In this environment—with the 30-year fixed mortgage rate hovering around 6.25%—many homeowners with rates above 7% from the 2022-2023 peak should seriously consider refinancing,” said Corey Briggs, director of wealth planning at the Briggs Group of Steward Partners in St. Louis.
Those who expect further rate reductions next year might want to wait, he added, but that can backfire. “The risk of waiting is that rates could tick up if inflation surprises to the upside or if geopolitical tensions flare.”
At the very least, he suggests that clients who are on the fence about refinancing consider starting the preapproval process now so they’re ready to lock in low rates whenever they decide to. If they change their minds, they can always “pivot quickly,” he said.
There is no universal threshold for determining when or if a client should refinance. In general, advisors recommend running a personalized breakeven analysis for every client who might benefit from refinancing to determine if it’s prudent. The analysis must take into account how much of the principal remains to be paid off and all the closing costs incurred by refinancing. If the refi leads to lower monthly payments that save enough to recoup the closing costs within two to three years, that’s a good sign. Refinancing is probably a wise move.
“Refinancing should be based on today’s reality, not tomorrow’s speculation,” said Loren Fellows at Johnson Financial Group in Madison, Wis. “If the rate available today offers meaningful savings after accounting for closing costs, it’s wise to lock that rate in. Waiting for a hypothetical lower rate could mean missing real savings today.”
If in fact rates do drop significantly in the future, clients can always refinance again, she added.
What's Achieved?
It’s important to ask what the client hopes to achieve by refinancing. Is saving money on monthly payments the number one priority? If so, a refi that resets the payment clock for another 30 years might be the way to go. If the objective is to pay off the loan sooner, however, or to reduce total interest paid, clients may prefer to refinance for 15 or 20 years, say, in which case they will pay more every month.
“Many lenders can customize terms,” she said. “For example, if you’re three years into a 30-year mortgage, you can refinance into a 27-year term, preserving progress while reducing interest.”
In the end, advisors say that the refinance decision should have more to do with each client’s personal financial picture and strategy than interest-rate shifts and rumors about the Fed’s future intentions.
Advisors should also consider how the reduced monthly payments will be used, said James Sahagian at Ramapo Wealth Advisors in Ramsey, N.J. If the savings go toward a tax-advantaged retirement or education fund—such as an IRA, 401(k) or 529 college savings account—the refinancing has additional long-term benefits. But those who use the savings just to have extra spending money “run the risk of deferring the eventual payoff of their mortgage to a time beyond their working years, when they’d be less likely to be able to continue paying at the same rate,” he cautioned.
A Longer Life for the Loan
Clients should also keep in mind that if refinancing extends the length of the loan, the property becomes more expensive, in a sense, because they end up paying more in interest.
This became clear last fall when President Trump floated the idea of a 50-year mortgage. The longer term might reduce monthly payments, but skeptics pointed out that the total amount of interest paid over so many more installments would come to roughly double that of a 30-year mortgage. That’s assuming the interest rate stays the same, even though the longer the loan, the riskier it is for the lender, who might raise the rate to compensate.
The same principles apply to a refi that extends the life of a loan.
“Clients should be aware that refinancing might mean paying more total interest on their loan,” said Kelly Regan at Girard, a Univest Wealth division in King of Prussia, Pa.
Still, that can be a good thing when it comes to tax time, she said. The interest paid on a mortgage loan is deductible for clients who itemize, and the payments in the early years of a new or refinanced mortgage are almost all interest, not principal.
Having a greater deduction may be more valuable than ever, she said. Last summer’s One Big Beautiful Bill Act extended the standard deduction for those who don’t itemize, effectively raising the bar for those who do. For the 2025 tax year, itemized deductions must exceed $31,500 for married couples filing jointly; next year, that amount goes to $32,200.
What’s more, starting this year, clients age 65 and older have an extra $6,000 exemption added to their standard deduction. This “senior deduction” is reduced by 6% for every dollar that taxable income exceeds $150,000 for joint filers, and it expires completely after 2028.
The new tax law also increased the deduction for state and local taxes (SALT) from $10,000 to $40,000 through 2029, with a 1% increase each year. It, too, phases out by 30% for those whose taxable income is between $500,000 and $600,000. Over that amount, the SALT deduction reverts to the old rate of $10,000.
“With the increase in SALT [and] the standard deduction, having more mortgage interest to deduct might be helpful tax-wise,” she said.
Overall, she encourages clients to look at their total financial picture before making any changes. Refinancing simply because of a rate drop is like making a decision based on “one piece of the puzzle,” she said.