When to Refinance in DC, MD & VA | The 18-Month Rule
When to Refinance in the DMV: A Mortgage Pro's 18-Month Rule
By John Downs - Certified Mortgage Advisor
If you bought your home after 2023, you’re likely holding a mortgage with a rate of 7% or higher. With rates trending lower in the DMV as of mid-2025, the time to consider refinancing is here. You've probably heard the phrase "date the rate, marry the house," but when can you actually break up with your current rate?
In this guide, I'll break down a simple rule to help you decide, drawing on 25 years of experience in the mortgage business. We'll cover the math to determine your break-even point for a mortgage refinance, review real-world examples, and discuss when to bend the rules, tailored for homeowners in the DC, Maryland, and Virginia (DMV) area.
Why Refinance? It's About More Than Just Lower Rates
Refinancing isn't free. There are always closing costs like lender fees, title charges, appraisals, and local recording taxes to consider. In Washington, DC, and Maryland, expect around $4,750 for a zero-point refinance on a typical $500,000 loan, while in Virginia, it costs $6,000 due to their mortgage recordation tax of 0.24% of your loan amount. This is before rate buy-downs or lender closing cost credits. (more on that below)
Historically, rates cycle every 4-6 years, and as of mid-2025, rates have been elevated for almost 3.5 years, frustrating many buyers in areas like Northern Virginia and Montgomery County, where prices soared and homeowners were hoping to ditch that rate much sooner! But how low do rates need to go for it to pencil out? That's where my 18-month rule comes in.
What Is the 18-Month Rule?
The 18-month rule is straightforward: Aim to recoup your closing costs through monthly interest savings within 18 payments. Why 18 months? It's a hedge against life's unknown future, like further rate drops allowing another refinance, or an unexpected move in the fast-paced DMV job market. If your break-even is longer, it might not be worth it unless special circumstances apply, as discussed below.
There are times to extend this timeline, but 18 months is a solid benchmark for most DMV homeowners facing high living costs.
How to Calculate Your Refinancing Break-Even Point
Step 1: Calculate Annual Interest Savings
Multiply your loan balance by the rate differential (old rate minus new rate).
Example: $500,000 loan at 7%, refinancing to 6% (1% differential).
Annual savings = $500,000 × 1% = $5,000
Step 2: Get Monthly Savings
Divide annual savings by 12.
Monthly savings = $5,000 ÷ 12 ≈ $417
Step 3: Determine Break-Even Months
Divide closing costs by monthly savings.
If costs are $5,000: $5,000 ÷ $417 ≈ 12 months
Since 12 < 18, this refinance makes sense under the rule.
This is a quick estimate. Actual savings factor in amortization, but it's close enough for decision-making. Our mortgage refinance software will provide you with your exact recapture period.
When Points Change the Equation
Lenders might offer a lower rate by charging points (upfront fees). One point = 1% of your loan amount. In our example, 1.5 points on $500,000 adds $7,500, making the total cost $12,500.
Break-even = $12,500 ÷ $417 ≈ 30 months
This is well over 18, which is potentially a bad deal if you refinance again or sell sooner.
Pro-Tip: Lending is a sales game. Shop around and validate quotes. Don't get sold on points without running the numbers. Mortgage Loan Servicers are often the worst offenders, especially with veterans.
A special note for veterans in the DMV
If you're eligible for a VA Interest Rate Reduction Refinance Loan (IRRRL), be careful! Loan servicers frequently target veterans with aggressive marketing for these loans, pushing high-cost versions loaded with points or fees that inflate closing costs without proportional benefits. Federal guidelines aim to prevent this by requiring a net tangible benefit (like a rate drop of at least 0.5% and a closing cost recapture period of 36 months), but shady practices persist. Always shop around, don't stick with your current servicer just because it's easy, because it will be easy everywhere! In Virginia and Maryland, where VA loans are popular due to military presence, this targeting is common; compare quotes to avoid overpaying.
When to Break the 18-Month Rule
Sometimes, math isn't everything. Consider refinancing even with a longer break-even if:
- You're switching jobs, becoming self-employed, or facing tougher financing soon, which is common in the DMV's government and tech sectors.
- You're converting the home into an investment property for cash flow goals, especially in appreciating areas like Northern Virginia. Once converted to an investment property, Loan Level Price Adjustments make refinancing much more costly.
- You need to consolidate high-interest debt to reduce monthly stress amid high DMV living expenses.
- Life events like illness, income loss, or retirement planning demand budget relief.
In these cases, the immediate benefits outweigh the need for strict adherence to the 18-month requirement.
Unlock Your Savings, Avoid the Pitfalls
Using the 18-Month Rule, you can confidently determine if refinancing makes sense for your bottom line. A 12-month break-even on a $500,000 loan could mean you start banking over $400 in savings each month after just one year.
But making the right move is just as important as avoiding the wrong one. Many homeowners lose their hard-won savings to common but easily avoidable mistakes.
Up Next: Don't miss my guide on the Top Five Homeowner Mistakes When Refinancing.
If you'd like me to personally calculate your potential savings and break-even point, click the button below to schedule a time. It’s the fastest way to get the clarity you need.
Don't Navigate Refinancing Alone
Remember, financial products are sales products. Most Loan Officers and Mortgage Companies try to "Sell" you on refinancing, instead of offering objective, honest analysis like we do!
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