With mortgage rates hovering around 6.16% and experts predicting they could fall to approximately 5.9% by year's end, many Houston homeowners are asking: Is now the right time to refinance?
If you locked in a rate during the 2023 peak or you're exploring ways to reduce your monthly payment, here are the essential factors to guide your decision.
Understanding the Current Rate Environment
After climbing to historic highs in late 2023, rates have gradually eased. However, 82.8% of homeowners currently have rates below 6%.
If you locked in a rate of 6.5% or higher, 2026 presents savings opportunities. For example, refinancing a $400,000 loan from 7.25% to 6% drops your monthly payment from $2,729 to $2,398, saving $331 per month.
The Break-Even Point: Your Most Important Calculation
Calculate your break-even point before refinancing. This is how many months it takes for monthly savings to offset closing costs.
The formula: Total refinancing costs divided by monthly savings. If refinancing costs $4,000 and saves $250 monthly, your break-even is 16 months. Aim for under 24 months and plan to stay in your home well beyond that.
When Does Refinancing Make Sense?
Lower your rate by at least 1%. This traditional rule holds true. If you can secure a rate at least a percentage point lower than your current rate, refinancing often makes financial sense. The long-term interest savings can be substantial.
Tap into your home equity. A cash-out refinance allows you to access equity for major expenses like home improvements or debt consolidation. This typically requires at least 20% equity in your home.
Change your loan term. Switching from a 30-year to a 15-year mortgage helps you build equity faster and pay less interest overall. Conversely, extending your term can lower monthly payments if you need budget flexibility.
Eliminate mortgage insurance. If you have an FHA loan, you're paying mortgage insurance premiums. Refinancing to a conventional loan once you have 20% equity eliminates this expense and reduces your monthly payment.
Reasons Not to Refinance Your Home
Don't refinance if you have limited equity, your credit score has declined, or you're planning to move within a few years. You won't stay long enough to recoup closing costs, which typically range from 2% to 6% of your loan amount. Use a mortgage calculator to model scenarios and understand true savings.
Special Considerations for Different Loan Types
FHA borrowers: Refinancing to a conventional loan could save hundreds monthly once you have sufficient equity. However, FHA streamline refinancing options exist if you want to lower your rate while keeping your FHA loan.
Jumbo loan holders: For high-value mortgages, even a small rate reduction translates to significant monthly savings. Flagstone Mortgage specializes in jumbo and super-jumbo refinancing and understands the specific requirements for these loan types.
Veterans with VA loans: VA streamline refinances (IRRRLs) offer a simplified process with reduced documentation. If you're a veteran or active-duty service member, this could be an efficient way to lower your rate.
Preparing to Refinance
Check your credit score and address any issues. Gather recent pay stubs, tax returns, and bank statements. Shop around with multiple lenders to compare rates and terms. Don't let the pursuit of the perfect rate prevent you from capturing meaningful savings. Waiting indefinitely for the absolute bottom could cost you more.
Making Your Decision
The decision to refinance depends on your unique financial situation. While 2026 presents opportunities as rates trend lower, the fundamentals remain constant: focus on your break-even point, consider your long-term plans, and work with a mortgage professional you trust.
At Flagstone Mortgage, we believe the most important factor isn't just getting a great rate. It's working with someone you trust. You'll have direct access to experienced mortgage professionals who understand the Houston market. Over ninety-five percent of our business is repeat and referral because we treat every client professionally, respectfully, honestly, and fairly. Call us today at (713) 458-3232 for a complimentary consultation.