Is It Worth Refinancing From 7% to 6%?

Going from a 7% mortgage rate to 6% sounds like a pretty meaningful improvement—and in many cases, it can be. But whether refinancing is actually worth it depends on more than the 1% rate reduction. You also need to consider your loan balance, refinancing costs, monthly savings, remaining loan term, and how long you expect to stay in the home.

For a Florida homeowner, the right question isn’t simply, “Is 6% better than 7%?” It is. The better question is, “Will the savings from 6% be enough to recover the cost of refinancing?”

How Much Can a 1% Rate Reduction Save?

Let’s use a simple example.

Suppose you have a $300,000 mortgage with 30 years remaining.

At approximately 7%, the principal-and-interest payment would be around $1,996 per month.

At approximately 6%, the payment would be around $1,799 per month.

That’s a difference of roughly:

$1,996 − $1,799 = $197 per month

Over a year, that’s approximately $2,364 in potential principal-and-interest savings.

Your actual payment could be different because property taxes, homeowners insurance, mortgage insurance, and other costs aren’t included in this simple comparison.

What About Refinancing Closing Costs?

This is where the decision becomes more interesting.

Suppose your refinance costs $8,000.

If your monthly savings are approximately $197:

$8,000 ÷ $197 = about 41 months

Your basic break-even point would therefore be around 3.4 years.

If you plan to stay in the house for significantly longer than that, refinancing may have a stronger financial case.

If you’re likely to sell within a year or two, paying thousands of dollars to refinance may not make much sense.

Your Loan Balance Makes a Big Difference

A 1% rate reduction can produce very different savings depending on how much you owe.

For example, someone with a $150,000 remaining balance won’t save the same amount as someone with a $500,000 balance.

That’s why online refinance examples can sometimes be misleading. The numbers need to be based on your actual mortgage balance.

A simple way to start is to compare your current principal-and-interest payment with the estimated payment at 6%.

Don’t Forget Florida Refinance Costs

Florida homeowners should also account for the costs associated with getting a new mortgage.

Depending on the transaction, these can include:

• Lender fees
• Appraisal costs
• Title services
• Recording charges
• Mortgage-related taxes
• Prepaid interest
• Escrow deposits
• Discount points

Florida also imposes documentary stamp tax on certain mortgage documents. The Florida Department of Revenue states that mortgages are generally subject to documentary stamp tax at $0.35 per $100 of the amount secured. (floridarevenue.com)

These costs should be included when you’re calculating whether moving from 7% to 6% is worthwhile.

What If the Lender Offers “No Closing Costs”?

You may see advertisements for a no-closing-cost refinance.

Be careful with the wording.

A lender may provide credits toward closing costs in exchange for a higher interest rate, or certain costs may be incorporated into the new loan. The CFPB explains that lender credits can reduce upfront costs but may come with a higher interest rate. (consumerfinance.gov)

So you might have:

6.00% + $8,000 upfront

or

6.25% + much lower upfront costs

The second option could potentially be better depending on how long you keep the mortgage.

What If You Have a Large Mortgage?

The larger your remaining balance, the more significant the monthly savings from a 1% rate reduction can become.

For example, consider a simplified 30-year loan:

These figures represent principal and interest only and assume a new 30-year loan. Your actual refinance payment will depend on the loan structure and other expenses.

Should You Restart With a 30-Year Mortgage?

This is another issue homeowners sometimes overlook.

Imagine you’ve already been paying your 30-year mortgage for 10 years. You refinance into another 30-year mortgage at 6%.

Your payment could decrease substantially, but you’ve also restarted the repayment clock.

That doesn’t automatically make refinancing a bad idea. You could potentially choose a shorter term, such as 20 or 15 years, if the payment fits your budget.

A lower rate isn’t the only thing to compare.

Look at the new loan term and total interest, too.

What If You Can Get 6% Without Paying Points?

That could make the refinance more attractive.

But if getting 6% requires several thousand dollars in discount points, you need to calculate whether you’ll stay in the mortgage long enough to recover that expense.

For example, suppose:

6.25% rate: $2,000 in points
6.00% rate: $7,000 in points

You are paying an additional $5,000 for the lower rate.

The question becomes: How much additional monthly savings does that lower rate create, and how long will it take to recover the extra $5,000?

When Refinancing From 7% to 6% May Make Sense

A refinance could be worth considering when:

• You have a relatively large remaining balance.
• You can genuinely obtain around 6% without excessive points.
• Your closing costs are reasonable.
• Your monthly savings are meaningful.
• You plan to stay in the home beyond your break-even period.
• You aren’t unnecessarily extending the loan term.
• Your overall financial situation supports the new mortgage.

When It May Not Be Worth It

Refinancing may be less attractive if:

• You plan to sell soon.
• Your remaining balance is relatively small.
• Closing costs are unusually high.
• You need to pay substantial points to reach 6%.
• The lower payment comes mainly from restarting a longer loan.
• Your monthly savings are too small to recover the refinance costs.

Calculate Your Break-Even Point

Before making a decision, try this simple calculation:

Total refinance costs ÷ monthly savings = break-even period

For example:

$8,000 ÷ $200 = 40 months

That means it would take approximately 40 months, or about 3 years and 4 months, to recover the upfront cost through monthly savings.

This isn’t a complete financial analysis, but it’s a useful starting point.

Don’t Look Only at the Monthly Payment

A lower monthly payment can be tempting, but it doesn’t always mean you’ll spend less overall.

When comparing your 7% mortgage with a potential 6% refinance, look at:

• New interest rate
• APR
• Monthly principal and interest
• Closing costs
• Discount points
• New loan term
• Total interest
• Cash required at closing
• Loan balance after several years

Your Loan Estimate can help you compare the actual costs of the new mortgage.

Frequently Asked Questions

Is dropping from 7% to 6% a good reason to refinance?

It can be, but it isn’t automatically worthwhile. A 1% reduction can create meaningful savings, but you need to compare those savings with closing costs and the length of time you plan to keep the new loan.

How much can I save refinancing from 7% to 6%?

The savings depend primarily on your remaining loan balance and term. For example, a new $300,000 30-year loan would have a principal-and-interest payment of roughly $1,799 at 6%, compared with roughly $1,996 at 7%.

How long should I stay in my home after refinancing?

Ideally, you want to remain in the home long enough for your monthly savings to recover the refinance costs. Calculate your break-even point before deciding.

Should I refinance if I have to pay closing costs?

Possibly. Paying closing costs isn’t necessarily a problem if the long-term savings are large enough. Compare the upfront expense with your expected monthly savings and how long you plan to keep the mortgage.

Final Thoughts

So, is it worth refinancing from 7% to 6%?

For many homeowners, a full percentage-point reduction is significant enough to make refinancing worth investigating. But don’t make the decision based on the interest rate alone.

Start with your remaining mortgage balance, get actual refinance quotes, calculate the closing costs, and determine your break-even period. Then consider how long you plan to stay in the property.

If the savings comfortably outweigh the refinancing costs and you’re planning to keep the home for several years, moving from 7% to 6% could be a worthwhile financial move.