How To Know If It's Time To Refinance

Summary

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Podcast Summary: The Ramsey Show Highlights

Episode: How To Know If It's Time To Refinance
Date: October 11, 2025
Host: Dave Ramsey (Ramsey Network)
Summary timeframe: Content only (ads and outros omitted)

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Overview

This episode centers on the question of when it makes financial sense to refinance a mortgage—especially in the context of other debts, changing interest rates, and aggressive pitches from lenders. Dave Ramsey fields questions from callers about paying off cars versus refinancing, explains how to do a break-even analysis for mortgage refinancing, and shares his perspective on current market trends and lender motivations.

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Key Discussion Points & Insights

1. Caller Scenario: Pay Off Car or Refinance Now? (00:06-00:55)

• Caller’s Situation:
  • Bought a house last year at a high interest rate: 7.375%.
  • Mortgage was sold; new lender aggressively recommends refinancing before caller pays off his car.
  • Car payoff amount: ~$6,600; about to finish Baby Step 2 (Ramsey’s debt snowball).
  • Concern: Lender claims paying off car might lower credit and harm refinance prospects.

Dave's Take:

• Mortgage lender’s advice is self-serving; they make money from the refinance (00:55).
  • Quote: “Your mortgage lender only makes a commission when they sell you a mortgage... we know their advice is tainted in this case.” – Dave Ramsey [00:55]
• Recommends paying off the car first; refinance can wait (01:11).
  • Quote: “Yeah, I’m paying off the car and I’ll get around to the mortgage later.” – Dave Ramsey [01:11]

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2. Why Was the Original Mortgage Rate So High? (01:25-01:46)

• Dave questions why the caller accepted a 7.375% rate when the market was closer to 6%.
• Caller admits financial inexperience and is learning with Ramsey’s Baby Steps.

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3. How to Decide If Refinancing Is Worth It (01:57-04:58)

• Break-Even Analysis:
  • Calculate annual savings from the lower interest rate.
  • Divide closing costs by annual savings to determine break-even time.
    • Example: $380,000 mortgage; 1% drop in rate = $3,800/year saved.
    • If closing costs are $15,000, recouping takes ~5 years (not attractive).
    • Ideally, break even within 2-3 years.
• Key Formula:
  • Quote: “The way you do the analysis is divide your interest rate dollars saved into your closing cost dollars. And that’s your number of years to break even. And that number of years needs to be two to three years maximum.” – Dave Ramsey [05:00]
• Lower closing costs and larger drops in rates make refinancing more worthwhile.
• Market Update: Minor recent drops, but not significant—probably better to wait unless sizeable savings can be achieved now.

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4. When NOT to Refinance (05:00-06:08)

• Most U.S. homes are sold every 6.5 years; average mortgage lasts 5.5 years.
• If break-even on refinance is 7 years, you probably won’t benefit.
  • Quote: “If you have a seven year break even on your refinance, you got screwed. Because on average, you’re not gonna be there that long. Oh, it’s my forever. Oh, shut up. I’m giving you the averages.” – Dave Ramsey [05:26]
• Wait for rates to drop further if possible, unless a two-year break-even is already achievable.

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5. Debt Payoff Order: Car and Student Loans First (06:08-07:53)

• Caller 2 asks: Why pay off the car instead of refinancing immediately?
  • Car payment’s impact on cash flow is greater and clearing it is a priority.
  • Quote: “The cash flow on the car payment is much greater than the 3,800... and the car, it’s like an impediment in this whole thing. It’s like the fly in the ointment.” – Dave Ramsey [06:19-06:34]
• Once car is paid, tackle student loan debt next.
  • “They need to clear the student loans before you go refinance.” – Dave Ramsey [07:00]
• If rolling refinance closing costs into the mortgage, ensure break-even still works.

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6. Finding Trustworthy Lenders & Market Context (07:53-08:50)

• Caller 2 shares positive experience: Churchill Mortgage prioritized caller’s benefit, not just making a sale.
  • Quote: “I need you to hear me say it. I’m not going to take your money unless this works out for you in the end. And so let me run the math on it and I’ll holler back at you.” – Churchill Mortgage via Caller 2 [07:55]
• Ramsey warns many mortgage companies (especially those who thrived on refinances) are pressuring customers due to shrinking business.
  • Quote: “Mortgage companies have been dying for the last three years because... refinances have disappeared... the refinance market has dried up.” – Dave Ramsey [08:22]

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Memorable Quotes

• “Your mortgage lender only makes a commission when they sell you a mortgage... we know their advice is tainted in this case.” – Dave Ramsey [00:55]
• “Yeah, I’m paying off the car and I’ll get around to the mortgage later.” – Dave Ramsey [01:11]
• “The way you do the analysis is divide your interest rate dollars saved into your closing cost dollars. And that’s your number of years to break even. And that number of years needs to be two to three years maximum.” – Dave Ramsey [05:00]
• “If you have a seven year break even on your refinance, you got screwed. Because on average, you’re not gonna be there that long. Oh, it’s my forever. Oh, shut up. I’m giving you the averages.” – Dave Ramsey [05:26]
• “The cash flow on the car payment is much greater than the 3,800... and the car, it’s like an impediment in this whole thing. It’s like the fly in the ointment.” – Dave Ramsey [06:19-06:34]

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Timestamps of Key Segments

• 00:06 — Caller outlines situation; lender pressures to refinance
• 00:55 — Dave identifies lender’s bias and prioritizes debt payoff
• 01:57 — Break-even analysis explained
• 05:00 — Calculation method for deciding on refinancing
• 05:26 — Why long break-even periods rarely pay off
• 06:19 — Why clear high-payment car debt before refinancing
• 07:00 — Student loans should be cleared before refinancing
• 07:53 — When to trust a lender and how the market context shifts lender behavior
• 08:22 — Explanation: Why some lenders are so aggressive right now

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Takeaways

• Don’t let lender pressure override good financial sense. Aggressive pitches often mean they benefit more than you do.
• Always calculate your break-even point before refinancing: divide closing costs by annual interest savings—if it takes longer than three years, it’s probably not worth it.
• Pay off higher-payment debts first (like car loans) before considering a refinance, to maximize cash flow.
• Consider market trends and average home tenure: Most people move or refinance again sooner than they expect.
• Work with lenders who prioritize your interests, even if it means saying “no” to a refinance that doesn’t make sense.

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Transcript

[Dave Ramsey]

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[Caller 1]

So I got a question that I think I know the answer to, but I'm gonna see what you're gonna say about it. So, bought a house last year. My interest rate is 7.375 and my mortgage was sold. And the new mortgage lender is saying, hey, we can save you some money if you refinance. Now we're on the back half of baby step two, my wife and I and I have the money to pay off our car, approximately 6,600. And the mortgage lender says I would strike now while rates are a little lower, because if you pay that car off, that's the last piece of debt in my name. You're. You said your credit is going to start to drop off and that'll start to hurt you. So I guess my question is, do I pay off the car or do I refinance and then pay off the car? What should I do?

[Dave Ramsey]

Yeah, well, your mortgage lender only makes a commission when they sell you a mortgage.

[Caller 1]

Right.

[Dave Ramsey]

So we know their advice is tainted in this case. Scott's pitching pretty hard.

[Caller 1]

He is. They, they are pretty aggressive with the calls.

[Dave Ramsey]

Yeah, yeah. So that, that right there tells you that something's up. Right? And so, yeah, I'm paying off the car and I'll get around to the mortgage later. Why did you take such a high interest rate loan?

[Caller 1]

Well, we were, we were living in.

[Dave Ramsey]

I know, but that's above market. What did you have bad credit?

[Caller 1]

No. Credit score is up for seven.

[Dave Ramsey]

Yeah, 737 is ridiculous. I mean, the market for a year has been at 6. That's weird.

[Caller 1]

Yeah. So I don't know a whole lot about finance. I've recently started learning everything and going through the financial piece and the baby steps. So I am making up for lost time.

[Dave Ramsey]

All right, let's do two things. Let's answer your question in two parts. And so we get the whole thing. And that'll help you, and it'll help some people that are listening to. Okay, number one, if the only choice is between paying off your car or refinancing, we'll pay off your car. Okay? So that, that, that part's answered. And number two, the mortgage lender being aggressive is your hint that he's self serving, not you serving. Okay. That's why they're calling back all the time and trying to make a commission. And so number three, here's how you calculate when you refinance a mortgage. Your break even. You do a Break even analysis. All right, let's use an example. All right, let's pretend that you had 737 and you could get 6, 3, 7. That's a spread of one. If you refinanced, right. And your loan balance is currently what.

[Caller 1]

380,000.

[Dave Ramsey]

Okay, so 1% is 3,800 bucks a year.

[Caller 1]

Correct.

[Dave Ramsey]

That is your savings. Okay. So if it costs you $15,000 to refinance and you recoup at the rate of 3,800, it's going to take five years to get your money back. You follow that? That's called a break even analysis. How long before I break even with a savings of 3,800 versus a cost of 15,000? If your cost was 7,600, you break even in two years and everything after two years, you're putting 3,800 in your pocket. That one starts to make sense.

[Caller 1]

Right.

[Dave Ramsey]

But 15 years doesn't make sense. And so what we've gotta do is we have to figure out the closing costs and divide the annual interest rate savings into the closing costs. And that number should be two, maximum of three years. Two to three years or less. And so what that ends up telling us is the lower the closing costs and the greater the difference in interest rates when you refinance, the more likely you are going to be to do it mathematically, because the faster you're going to break even.

[Caller 1]

I agree.

[Dave Ramsey]

Okay. And so if these rates drop on down, if we see some continued movement, and we've seen a little bit of movement in the last few weeks where the 15 year right now is 5.86 on a 15 year, okay, it's 5.95, you know, so it's only a tenth of a point. It's just barely moving. It's just hanging around. But there's all this discussion around the Fed and all these other things right now. There seems to be some downward pressure. So I disagree with your guy that now is the time. I probably would wait a little bit. But if you could save 2% right now and you could make your money back in two years, I'd refinance it right now. But not with your car money.

[Caller 1]

Okay. Yeah.

[Dave Ramsey]

So the way you do the analysis is divide your interest rate dollars saved interest dollars saved into your closing cost dollars. And that's your number of years to break even. And that number of years needs to be two to three years maximum. And so just to throw a few more stats that you guys listening out there and hearing this, the average home in America for the past 25 years has sold every 6.5 years. And the average mortgage only lasts 5.5 years. And so if you have a seven year break even on your refinance, you got screwed. Because on average, you're not gonna be there that long. Oh, it's my forever. Oh, shut up. I'm giving you the averages. I don't hear about your forever nothing. Okay, so the deal is that your refinance needs to break even in two years, maybe three. But as we see these rates slide down and some of you are sitting in some 6, even some 7% interest rates, and we see them slide down towards 5 again, you're going to see that 2% margin. And that 2% margin is going to take a whole bunch of you make this formula work to refinance.

[Caller 2]

Why would I, I'm asking for a friend. Why would I pay off that car with that 6,000 bucks versus pay this thing off and lower that rate substantially?

[Dave Ramsey]

Because we've got to clear the cash first. The cash flow on the car payment is much greater than the 3800, which.

[Caller 2]

Good call. So I'm probably paying 5, 600 bucks a month on that car.

[Dave Ramsey]

7 average is 780 right now.

[Caller 2]

Then the 3000. 3800 bucks divided by 12. Okay.

[Dave Ramsey]

And the mortgage is going to be sitting there. And the car, it's like a, an impediment in this whole thing. It's like the, it's like the fly in the ointment.

[Caller 2]

I love that.

[Dave Ramsey]

And the mortgage is sitting there. I got to clean up the mess so I can go work on and fine tune the stuff that's not as big a mess.

[Caller 2]

Yeah, okay.

[Dave Ramsey]

You know, we don't mess with the fine tuning while we still got baseballs being thrown through the window.

[Caller 2]

So if somebody clears the cars and they've got $35,000 in student loan debt.

[Dave Ramsey]

They need to clear the student loans.

[Caller 2]

Before you go refinance your.

[Dave Ramsey]

Yeah, Unless if you want to roll your refinance costs into the mortgage, you could do that, but you don't need to drain cash to do it. Okay. Because again, but only if you're breaking even then, because you now owe more on the house by $7,000, but you're going to save 3800amonth or 3800 a year so that you'll be back two years. Two years. You come out ahead on doing that even though you owe more, but you'll owe less. Gotcha. When you're done. So all that works out mathematically, but wow, A Little bit of a barrel of fish hooks. So. But yeah, that, that's guys and gals, how you work your refinance calculator. And Churchill Mortgage can help you with all that. We've endorsed them through all the ups and downs of interest rates over all these 30 something years. They've been on the air with Ramsey and they can help you whether. And they'll tell you the truth, they're not going to do what this mortgage lender is doing to Steven and just hound you to buy something you don't.

[Caller 2]

I'll tell you my favorite thing. When I called Churchill and said, this is several years ago and refinance my house. And the first thing the guy said to me was, I need you to hear me say it. I'm not going to take your money unless this works out for you in the end. And so let me run the math on it and I'll holler back at you. And then he called back and said, oh yeah, this is a great deal, X, Y or Z. But that was the first thing is I'm not going to just make a sale on your back. I'm not going to take your money if this isn't going to work out for you and your family. And I mean, I was like, man, I'm all in. I appreciate that.

[Dave Ramsey]

And just a little inside baseball guys, mortgage companies have been dying for the last three years because they existed for the previous 10 years. 20 years on refinances and refinances have disappeared as some of you are sitting on 2 and 2.37 and you're not going to refinance at a 5.8. You'd be dumb to do that. And so the refinance market has dried up and they were living off of refinances. So a lot of mortgage companies have gone broke. And so that's where some of this pressure is coming from. And then you got people like Rocket, create your free every dollar budget today. The simplest way to budget for your life.