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Should you consider refinancing your mortgage?

July 15, 2026
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“Even though they’ve retreated from their recent highs, aren’t interest rates still a bit too elevated to consider refinancing?”

It’s a common question, but the answer shouldn’t be based on interest rates alone. Refinancing decisions can benefit from a planning-based approach, where the current rate environment is one factor among many. Other considerations may include:

  • Estimated equity: The amount of equity in your properties — and how you plan to use it now and in the future.

  • Liquidity considerations: Whether you anticipate liquidity or cash flow challenges both now and later.

  • Goal alignment: How refinancing might support your broader short- and long-term goals. 

How refinancing can impact your broader financial strategy

Debt can be more than a liability — it can serve as a strategic tool within your overall financial picture. Deciding if and when to refinance a mortgage often involves evaluating factors such as short- and long-term goals, market cycles and personal liquidity needs.

Your advisor, in partnership with a Bank of America lending specialist, can help you evaluate economic and personal factors that may influence refinancing decisions. 

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Understanding refinancing strategies

Refinancing involves either taking out a new loan on a property that is free of liens or replacing existing mortgage debt with a new loan — typically to adjust interest rate, loan structure, loan term or access home equity. The most appropriate strategy depends on your specific objectives.

Rate-and-term refinance:

Aims to lower your interest rate, modify loan structure and/or change the length of the loan. This approach may be especially attractive when interest rates decline or when adjusting the term or loan type better aligns with your financial goals.

Term adjustment:

This approach may allow you to shorten or extend the loan term — either to accelerate payoff or lower monthly payments — to better align with cash‑flow needs or retirement timing.

Other strategies focus more directly on home equity:

Cash-out refinance

Allows you to access built-up equity by refinancing for more than your current loan balance and receive the difference in cash. This approach may be useful for homeowners with considerable equity and a major upcoming expense.1

Cash-in refinance

Involves using liquidity to pay down a portion of the existing loan principal, improving your loan-to-value (LTV) ratio and potentially qualifying for more favorable pricing.

Delayed financing (also known as cash recapture)

Allows you to recover funds used to purchase a property by completing a cash-out refinance within a specified period after closing.

Interest rate considerations

In the aftermath of the 2008 financial crisis, the U.S. government kept the Federal Funds rate near zero for almost a decade to help stimulate economic growth. As rates gradually increased and were later lowered again during the COVID‑19 pandemic, historically low mortgage rates became normalized.

Despite rates having retreated from their 2023-2024 highs, many homeowners continue to take a “wait-and-see” approach to refinancing — hoping rates will fall further, even though they remain below the 7.69% historical average for 30‑year mortgages (see chart below).
Line chart showing the average U.S. 30-year fixed mortgage rate from 1971 to 2025. See the link below for full description.

Source: Freddie Mac via FRED®. Federal Reserve Bank of St. Louis, March 26, 2026.
Shaded areas indicate U.S. recessions.
Past performance is no guarantee of future results.

While interest rate movements tend to be the most visible catalyst for refinancing, timing can also be important for homeowners with more complex mortgage structures, such as adjustable-rate mortgages (ARMs) or interest-only loans. For example, if you’re approaching the end of a fixed-rate or interest-only payment period, refinancing earlier may help mitigate the risk of a "payment shock" if market rates have risen since the loan originated.

It’s also important to factor in relationship-based pricing, which may result in interest rate reductions at Bank of America of up to 0.50% for eligible clients. This benefit can meaningfully improve refinancing economics, even when broader rate movements are modest. 

Considerations relating to your circumstances

Mortgage decisions are based on your overall financial picture, which may have changed since your current loan was originated. Lenders typically look for stability and strength across credit, income and liquidity, and improvements in any of these areas can often signal a favorable window for refinancing:

  • Credit optimization: If your credit score has increased since your original loan, you could qualify for a lower interest rate.

  • Debt-to-income (DTI) ratio: A decrease in other liabilities or an increase in recognized income can strengthen borrowing power.

  • Equity growth: If the value of your primary or secondary residence has appreciated substantially, your loan-to-value (LTV) ratio may improve, potentially unlocking improved pricing.

Keep in mind that refinancing involves costs, including closing fees and appraisals. To determine whether refinancing makes financial sense, it’s helpful to conduct a break-even analysis which compares total closing costs to expected monthly savings:

If you expect to live in the property well beyond the number of months required to break even on the cost of refinancing, it may make sense to refinance. Conversely, if you plan to sell the property or pay off the loan within 24 months and your break‑even point is near or beyond that timeframe, refinancing may be less compelling unless it aligns with your broader financial plan. 

The right time to refinance is often when it supports a specific goal, such as:

Consolidating debt

Using a mortgage refinance to combine higher-interest debt into a lower-rate loan.2

Wealth transfer

Freeing up liquidity to assist children with a first-home purchase or to fund a trust.

Renovation

Using a cash-out refinance to help increase the long-term value of a legacy estate. 

It’s also important to align the length of your mortgage with your broader financial timeline and goals:

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The value of professional guidance

Beyond your personal balance sheet, broader economic considerations can also influence refinancing decisions:

  • In periods of high inflation, borrowers may choose not to refinance, as low interest, long-term fixed mortgage debt can become less costly in real terms over time.

  • During a cooling housing market, refinancing earlier may help preserve more favorable loan terms, although lenders may reduce loan-to-value limits if home values decline.

Refinancing a high-value property involves more than comparing rates and payments. It often requires modeling different scenarios and loan structures to understand how changes in debt may affect taxes, liquidity and estate plans. Your advisor, in partnership with a lending specialist, can help evaluate trade-offs and how refinancing fits within your broader financial strategy.

Advances may be used only for non-purpose activities and may not be used to purchase or carry securities.

1 You may be able to access a portion of your home equity if you qualify and have sufficient equity to meet loan guidelines. Accessing home equity will result in an increased principal balance and may result in an increased monthly payment. Please contact us so we can help determine if you may have available equity in your home and to discuss your specific situation.

2 The relative benefits of a loan for debt consolidation depend on your individual circumstances. For example, you may realize interest payment savings by making monthly payments towards the new, lower interest rate loan in an amount equal to or greater than what was previously paid towards the higher rate debt(s) being consolidated.

Banking, mortgage, and home equity products are provided by Bank of America N.A and affiliated banks, Members FDIC and wholly owned subsidiaries of Bank of America Corporation. Home Icon for Equal Housing Lender Equal Housing Lender. Credit and collateral are subject to approval. Terms and conditions apply. This is not a commitment to lend. Programs, rates, terms and conditions are subject to change without notice.

Merrill, its affiliates and financial advisors do not provide legal, tax or accounting advice. You should consult your legal and/or tax advisors before making any financial decisions.

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