Thinking About Refinancing Your Mortgage in Early 2026? Here’s What You Need to Know

If you’re a homeowner with a mortgage, you might be wondering if 2026 is a good time to refinance your loan, especially if you locked in a high interest rate in recent years.

With inflation slowly decreasing and mortgage rates inching down, it’s important to stay informed about the factors that could affect your options.
 

Why Mortgage Rates Might Change in 2026

Mortgage rates are closely connected to the bond market, but decisions and updates from the Federal Reserve (or the “Fed”) can influence them too.

The Fed plans several key meetings at the end of 2025 and in early 2026. What happens at these meetings can impact whether mortgage rates go up, down, or stay the same.

Some major things to watch are inflation numbers, how many people are working, and the overall stability of the financial world.

For example, in September 2025, the annual inflation rate was about 3%. If inflation continues to drop toward the Fed’s target of 2%, mortgage rates might go down as well.
 

Who Should Consider Refinancing?

Even a small decrease in mortgage rates could make refinancing worthwhile, especially for people who bought homes between 2022 and 2024, when rates were higher.

But refinancing isn’t right for everyone. You’ll need enough equity in your home, and you should be able to cover the closing costs, which usually range from 2% to 6% of your loan amount.
 

Figuring Out If Refinancing Makes Sense

David Askew from Mercer Advisors recommends reviewing your finances before the end of 2025. First, check how a new lower interest rate would affect your monthly mortgage payment.

For example, if you have a $500,000 mortgage at 7% interest from 2022, lowering your rate to 5.75% in 2026 could save you about $550 a month.

But don’t forget those closing costs. If your costs are 2% of your loan ($9,547 in this example) and you save $550 a month, it would take about 17 months before you break even.

If costs are higher, say 6%, you’d need about 52 months to recoup that expense.

If you plan to stay in your home for many years, refinancing often pays off. If you might move soon, the math becomes more important.
 

Don’t Forget Your Emergency Savings

Refinancing can cost you upfront cash, so make sure you still have enough set aside for emergencies. Experts say to keep at least three to six months of living expenses in savings.
 

Steps to Prepare for Refinancing in 2026

 

1. Review Your Current Mortgage: Note your loan balance, interest rate, term, and if you have mortgage insurance.
2. Get Quotes from Multiple Lenders: Compare interest rates, fees, and monthly payments from at least three places.
3. Calculate Your Break-Even Point: Figure out how long it will take to recover your closing costs using the formula:
4. Total Closing Costs ÷ Monthly Savings = Months to Break Even
5. Pick a Loan Term: Decide if you want a shorter-term loan (higher payments, but less interest overall) or a longer-term loan (lower payments, but more interest paid).
6. Time Your Rate Lock: With big Fed meetings coming up, ask lenders how long they’ll lock in your interest rate and what your options are.
7. Compare The Total Cost: Look at the overall cost over time, not just the monthly payment, to make sure it fits your financial goals.

 

Other Things to Think About

Lower monthly payments can help free up money for other debts or savings. If you plan to stay in your home for a long time, a fixed-rate mortgage can add stability to your finances.

And remember, refinancing isn’t just a one-time opportunity; if rates drop further, you might refinance again.

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