There is a rule of thumb that says refinance when rates drop a full point. It is wrong often enough to be dangerous, in both directions.
The real test: divide your closing costs by your monthly savings. If you will still own the home well past that many months, refinancing is worth considering. If not, it is not.
The rule ignores the two variables that decide the answer: how much the refinance costs and how long you will keep the loan.
A half-point drop on a $600,000 balance with modest closing costs can pay for itself in under two years. A full point drop on a $120,000 balance with $6,000 in costs may never pay for itself at all. Same rate movement, opposite conclusions.
Take your closing costs and divide by the monthly payment reduction. That is your break-even in months.
Then ask the harder question: will you still own this home then? People consistently overestimate how long they will stay. If the break-even is 52 months and you expect to move in four years, the deal is a wash at best.
Run your own numbers
See the break-even month and what a refinance costs across the whole loan.
A lower monthly payment does not mean lower cost. If you have 22 years left and refinance into a fresh 30-year loan, the payment falls partly because of the better rate and partly because you stretched the balance across eight more years. That second part is not a saving — it is a delay you pay interest on.
Two ways to avoid it. Refinance into a term close to what you have left, or refinance into a 30-year and keep paying your old payment voluntarily. The second gives you a lower required payment as a safety net while the loan still finishes early.
If your rate is already low by current standards, refinancing to lower a payment almost never works — you would be raising the rate on the entire balance to buy a monthly discount. If you need cash flow relief and hold a low rate, look at a recast instead, which keeps your rate and costs a few hundred dollars.
Also leave it alone if you might move within the break-even window, or if your credit has weakened since you closed. The rate you are quoted depends on your profile today, not the one you had at purchase.