When Is It the Right Time to Refinance? (Hint: Not Just Because Rates Dropped)

Mortgage rates in Central Iowa have finally slid to just under 6% for a 30-year fixed loan — a welcome relief from the 7–8% we saw not long ago. Naturally, homeowners with higher rates are eyeing the refinance button. But here’s the truth: a lower rate isn’t the real reason to refinance. The real reason is return on investment (ROI).

Dave Ramsey’s rule of thumb is simple: only refinance if you can break even on your closing costs within 3 years. If it takes longer than that, you’re not saving money — you’re just paying fees for the privilege of getting a lower number on paper.

The ROI Test

In Central Iowa, refinance closing costs usually run $3,500–$5,000. That’s your upfront investment. To justify refinancing, your new monthly payment must be low enough that, compared to your current loan, you’ve saved that money back within 36 months. After that point, it’s real savings in your pocket.

Example: The Math in Action

Imagine you have a $250,000 loan at 7.00% on a 30-year fixed. Your principal and interest payment is about $1,662/month.

• Refinancing to 5.75% lowers the payment to about $1,465/month.

• Monthly savings: $197.

• In 36 months, that’s $7,092 saved. Subtract $5,000 in closing costs, and you’re ahead by $2,092 within 3 years.

That’s how you know refinancing passes the test. If the numbers don’t get you to break-even inside 3 years, it’s not worth it.

Beyond Lower Rates: Other Smart Reasons to Refinance

Dave Ramsey highlights a couple of other scenarios where refinancing is smart — but with guardrails:

1. Move to a 15-Year Mortgage

   • If you can handle the payment, refinancing to a 15-year loan saves massive amounts of interest and builds equity fast.

   • The rule: your new 15-year payment should not be more than 25% of your take-home pay. If it fits that guideline, it’s a great move.

2. Consolidate a Second Mortgage

   • If you’ve got a first mortgage plus a second (like a home equity loan), rolling them into one can simplify things.

   • Ramsey’s rule: consolidate only if the second mortgage balance is more than half of your annual income. Smaller than that, you’re usually better off attacking it separately.

Bottom Line

Refinancing isn’t about chasing headlines or bragging at the coffee shop about your “new low rate.” It’s about ROI and long-term financial strategy. The 3-year break-even rule should be your starting line. From there, a refinance also makes sense if it helps you switch to a 15-year mortgage (within the 25% take-home pay guideline) or consolidate a second mortgage (when that balance is bigger than half your income).

If you’re thinking about refinancing, let’s run the numbers together. I work with several reputable loan officers here in Central Iowa, and I’d be happy to connect you with the right professional for your situation. Contact me if you’d like help.

As a Broker Associate/REALTOR® at EXIT Realty and Associates, I specialize in buying and selling real estate throughout Central Iowa, including Norwalk, Des Moines, West Des Moines, Cumming, Indianola, Carlisle, Waukee, Urbandale, Grimes, Clive, Johnston, Ankeny, Altoona, and Pleasant Hill. I proudly serve Warren, Polk, Dallas, and Madison Counties.

💬 Get honest, straightforward real estate insight from someone who knows Central Iowa. Call me, Jon Niemeyer, at 515-490-4675 — no pressure, just perspective.