How much does a 1% rate drop save?
A one-point drop in your mortgage rate sounds big. Here’s what it’s worth in dollars, and why the right answer to “should I refinance?” depends on more than the rate.
The quick answer
On a 30-year fixed loan at today’s rate levels, every 1 percentage point lower saves roughly $65 to $70 a month for each $100,000 you borrow. On a $400,000 loan, going from 7.5% to 6.5% lowers the principal-and-interest payment by about $269 a month, or about $3,200 a year (360 monthly payments; APRs equal to the rates, assuming no finance charges).
Monthly savings from a 1% drop, by loan amount
Payments below compare a 7.5% rate (7.5% APR) with a 6.5% rate (6.5% APR) on the same loan amount, each repaid in 360 monthly payments. The APRs assume no finance charges; see the note at the end.
| Loan amount | Monthly P&I at 7.5% rate (7.5% APR) | Monthly P&I at 6.5% rate (6.5% APR) | Monthly savings | Yearly savings |
|---|---|---|---|---|
| $200,000 | $1,398.43 | $1,264.14 | $134.29 | $1,612 |
| $300,000 | $2,097.64 | $1,896.20 | $201.44 | $2,417 |
| $400,000 | $2,796.86 | $2,528.27 | $268.59 | $3,223 |
| $500,000 | $3,496.07 | $3,160.34 | $335.73 | $4,029 |
| $600,000 | $4,195.29 | $3,792.41 | $402.88 | $4,835 |
| $750,000 | $5,244.11 | $4,740.51 | $503.60 | $6,043 |
What smaller drops save
You don’t always need a full point. Here’s the monthly savings per $100,000 borrowed when a 7.5% rate drops by:
| Rate drop | Monthly savings per $100,000 |
|---|---|
| 0.25 points | $17.04 |
| 0.50 points | $33.91 |
| 0.75 points | $50.62 |
| 1.00 points | $67.15 |
Multiply by your loan amount in hundreds of thousands. A 0.5-point drop on a $500,000 loan saves about $170 a month.
Is it worth refinancing for 1%?
Savings only count after they’ve paid back what the refinance cost. Freddie Mac says closing costs typically run 3% to 6% of the loan. If a refinance on a $400,000 loan cost $8,000 and saved $269 a month, you’d break even in about 30 months, so it’s worth it if you’ll keep the loan well past two and a half years. If you could keep costs to $4,000, you’d break even in about 15 months.
Also look at the total interest. Restarting a 30-year term on a loan you’ve been paying for years can lower your payment while adding years of interest. Our refinance calculator shows both, and the break-even calculator gives you the payback month.
Why your savings may differ
- Your rate isn’t the average. Credit score, equity, loan size and property type all move your price. Compare with today’s rates and APRs.
- Mortgage insurance and fees change the real cost. Compare APRs, not just rates.
- Your balance is lower than your original loan, so use what you owe now, not what you borrowed.
Don’t keep checking
Rates move every business day. Tell us your current rate and the drop you’re waiting for, and we’ll email you when the market gets there.
Frequently asked questions
How much is 1% on a $300,000 mortgage?
Going from 7.5% to 6.5% on a $300,000, 30-year fixed loan lowers the principal-and-interest payment by about $201 a month, or about $2,400 a year, before closing costs.
Is a 0.5% rate drop worth refinancing?
It can be on a larger loan or with low closing costs. Divide your costs by the monthly savings and compare that with how long you’ll keep the loan.
Does the savings stay the same every year?
The payment difference stays the same for as long as both loans would run, but the interest saved each year shrinks slowly as the balance is paid down.
Sources
Payment examples are math illustrations, not loan offers. Each assumes a fixed-rate loan repaid in 360 monthly principal-and-interest payments and an APR equal to the interest rate (no finance charges). Real loans have closing costs and finance charges, so the APR is higher than the rate, and taxes and insurance make the actual payment higher. See today’s rates and APRs. By refinancing an existing loan, your total finance charges may be higher over the life of the loan.