Homeowners who locked in mortgages during the rate spike of 2023 and 2024 have spent two years watching from the sidelines, hoping for conditions to improve. As 2026 begins, that patience may finally be rewarded.

Mortgage rates have drifted lower, touching 5.99% for 30-year fixed loans in early January—the first time rates have dipped below 6% since early 2024. While nobody expects a return to the 3% rates of the pandemic era, the current environment is creating genuine refinancing opportunities for millions of American homeowners.

The Numbers That Matter

According to ICE Mortgage Technology, approximately 20% of American mortgage holders currently have rates above 6%. For these homeowners, the current rate environment represents a potential window for meaningful savings.

Consider the math: A homeowner with a $500,000 mortgage at 7%—not uncommon for those who purchased in late 2022 or 2023—pays approximately $3,327 per month in principal and interest. If rates drop to 5.75% (a realistic target based on current forecasts), refinancing would reduce that payment to $2,917, saving $410 per month or nearly $5,000 per year.

Closing costs for a refinance typically run 2-5% of the loan amount. On a $500,000 mortgage, that's $10,000-$25,000. At $410 in monthly savings, the breakeven period would be 24-61 months—still worthwhile for homeowners planning to stay in their homes for several years.

What the Industry Expects

The Mortgage Bankers Association projects 30-year rates will average 6.4% through 2026. Fannie Mae sees rates hovering above 6% for most of the year but dipping to 5.9% by the fourth quarter. Redfin projects a 30% annual increase in refinance volume, potentially reaching $670 billion by year-end.

"Rates for those looking to refinance should continue softening into and throughout 2026," says Brian Shahwan, VP at William Raveis Mortgage. "It may not be a straight line down, as there will be bumps along the way, but the overall trajectory of rates should continue downward."

The primary drivers of the expected refinancing wave are homeowners who purchased between late 2023 and 2025, when rates peaked near 8%. Even a modest decline in rates creates substantial savings for these borrowers.

The 70% Who Won't Refinance

It's worth understanding why most homeowners won't be refinancing, even as rates decline. According to ICE Mortgage Technology, fully 70% of American mortgage holders have rates below 5%. For these homeowners, any refinance would actually increase their monthly payments.

This is the legacy of the pandemic-era rate environment. Millions of Americans locked in historically low rates between 2020 and 2022. Absent a return to those extraordinary conditions, these homeowners have no incentive to refinance their first mortgages.

Instead, many are turning to home equity lines of credit (HELOCs) and home equity loans to access their accumulated equity without disturbing their low-rate first mortgages. This represents a structural shift in how homeowners think about their real estate wealth.

How to Evaluate Your Refinancing Decision

For homeowners considering a refinance, several factors determine whether the move makes financial sense:

  • Rate differential: Most experts recommend a minimum 0.50-1.00% rate reduction to justify refinancing costs. The larger the rate drop, the stronger the case.
  • Loan size: Refinancing a $500,000 mortgage saves more in absolute dollars than refinancing a $200,000 mortgage at the same rate differential. The economics favor larger loans.
  • Time horizon: Closing costs need to be recouped through monthly savings. Calculate your breakeven point and compare it to how long you plan to stay in the home.
  • Loan term reset: Refinancing a 30-year mortgage 10 years in resets the clock. Consider whether you want to extend your payoff timeline or shorten it with a 15 or 20-year term.
  • Cash-out considerations: Some homeowners combine a rate reduction with a cash-out refinance, accessing equity while improving their rate. This adds another dimension to the calculation.

The Rate Forecast Uncertainty

While the general expectation is for rates to trend modestly lower through 2026, forecasting mortgage rates with precision is difficult. Rates are influenced by:

  • Federal Reserve policy: The Fed sets short-term rates, which influence the entire rate structure. More cuts would support lower mortgage rates.
  • Inflation expectations: Persistent inflation could keep rates elevated, even if the Fed cuts its policy rate.
  • Treasury market dynamics: Mortgage rates are closely tied to 10-year Treasury yields. Heavy government borrowing or foreign selling of Treasuries could push rates higher.
  • Economic conditions: A recession would likely push rates lower as the Fed responds aggressively. Strong growth could keep rates elevated.

Practical Steps for Potential Refinancers

For homeowners seriously considering a refinance in 2026, a structured approach can help:

1. Know your current terms: Pull out your original loan documents. What rate are you paying? When did the loan originate? What's the current balance?

2. Check your credit score: Your credit score significantly affects the rate you'll qualify for. Scores above 760 typically qualify for the best rates.

3. Gather documentation: Lenders will want income verification, tax returns, and asset statements. Having these ready speeds the process.

4. Shop multiple lenders: Rate quotes vary significantly between lenders. Get quotes from at least three sources, including your current lender.

5. Consider the timing: If you believe rates will decline further, you might wait. If you think current rates represent a good opportunity, locking in makes sense. Nobody knows for certain where rates will go.

The Bottom Line

For the 20% of mortgage holders with rates above 6%, 2026 presents a genuine refinancing opportunity. The math works for many of these borrowers, particularly those with larger loans who plan to stay in their homes for several years. As always, individual circumstances vary, and the decision requires careful calculation of costs, savings, and time horizons. But after two years of waiting for conditions to improve, the window is opening—and for some homeowners, this may be the year to step through it.