A
new study by Neighbors Bank warns that relying on refinancing as a financial lifeline may be a risky strategy for homebuyers. To break even on refinancing closing costs within three years, most borrowers would need to see 30-year mortgage rates drop at least 75 basis points. However, the amount of time needed to recoup these costs varies by state due to differences in property taxes, loan sizes, and other fees.

    The study's findings suggest that buyers shouldn't count on refinancing as a strategy to afford a new home. Instead, it should be viewed as a bonus opportunity rather than a financial lifeline. "There's no guarantee that rates will drop in the near future," said Jake Vehige, president of mortgage lending at Neighbors Bank. "For that reason, it's essential for buyers to take on a mortgage payment they can comfortably manage from day one."

    Refinance closing costs also differ significantly by location, with property taxes being the biggest factor. Even small drops in rates may not be enough to justify delaying a home purchase, especially for those planning to stay in their homes for at least three to five years. In fact, locking in today's rate might be the smarter choice for long-term savings.

    The study found that if rates drop by 50 basis points, homeowners who bought in 2025 will be able to recoup their refinancing costs in three years – but only in 10 states. Homeowners in every state will break even within five years, although the savings vary widely. The locations with the highest five-year net savings after a drop of 50 basis points tend to be where home prices are highest, such as Washington, D.C., California, and Hawaii.