If you took out a mortgage when interest rates were high, you’ll probably want to refinance to a lower rate. Mortgage rates are currently trending downwards, but how do you know when is the right time to refinance?
It depends on several factors, including how long you plan to live in the home, the size of your mortgage and where you live, says Melissa Cohn, regional vice president at William LaVais Mortgage.
Let’s take a look at what’s next for mortgage rates and what to consider when considering refinancing in 2024 and beyond.
Will mortgage rates fall further this year?
After record low interest rates, mortgage rates have begun to rise in 2022 due to the Federal Reserve’s rate hikes. Mortgage rates peaked above 8% in October 2023 but have been trending downward since then, with recent economic data from August putting rates below 7%. As of Sept. 18, the average 30-year fixed rate was 6.20%, according to a Bankrate survey of the nation’s largest lenders.
Kohn said the weakening employment and economic situation prompted the Fed to cut interest rates by 50 basis points at its Sept. 18 meeting. It’s possible that interest rates could fall further this year, either through additional rate cuts, lower bond yields, or both.
Fixed-rate mortgages, the most common type of mortgage, move up and down with the 10-year Treasury yield, a figure that depends on many factors, including the Fed’s policies. As bond yields continue to fall and mortgage rates are likely to follow, rates could fall another 0.25 to 0.50 percentage points by the end of the year unless the Fed cuts rates further, according to Kohn.
Some believe further steps are needed to bring interest rates down further.
“Looking ahead, mortgage rates appear to be pricing in a lot of these future rate cuts. I think we’ll need further softening in the labor market for rates to fall further,” said Michael Becker of Sierra Pacific Mortgage.
The resurgence of the “serial refinancer”
In recent years, many borrowers have settled for higher mortgage rates in hopes of refinancing in the future. Some may refinance multiple times if rates trend downward. “Many homeowners currently borrowing at 7.5 to 8 percent mortgage rates may end up refinancing in succession if mortgage rates continue to fall over an extended period of time,” McBride says.
The refinance-and-repeat strategy may work, but remember: You’ll pay settlement costs each time you refinance, and you can usually only refinance after a “break-in” period of at least six months has passed since you paid off your original loan.
The state you live in can have a big impact on whether you refinance frequently, says Cohn, because states impose different fees and taxes when you refinance. “Borrowers in states with higher costs (such as New York) are less likely to refinance repeatedly,” Cohn says. “Looking for a loan that allows you to change the interest rate after closing is a win-win solution for borrowers.”
When can refinancing save you money?
Our mortgage refinance breakeven calculator can help you accurately estimate when you will be able to recoup the costs of refinancing. Here is an example that assumes a borrower with a 30-year fixed rate mortgage decides to refinance to a 30-year after 5 years. This example assumes $7,000 in closing costs.
Loan amount | $303,280 |
Current mortgage interest rates | 7.12% |
Current payment | $2,042 |
Interest rate after refinancing | 6.2% |
New Payments | $1,751 |
Break-even point | 23 months |
Monthly savings | $292 |
| Note: These monthly payments include payments of loan principal and interest but do not include taxes, insurance or other fees. |
Keep in mind that closing costs can vary significantly depending on where you live, your loan amount, and the lender you choose. A lower interest rate may mean higher fees, and vice versa. Always compare multiple offers and research interest rates and fees to ensure you’re getting the best deal.
Can I refinance to a higher interest rate?
The main purpose of refinancing is to lower your interest rate and save money.
But that doesn’t mean you can’t refinance when interest rates are high. Some borrowers do so due to personal circumstances, such as a divorce or unexpected medical bills.
“Speaking from personal experience, my son specifically needed to refinance, so he refinanced,” said Ron Haney, senior vice president at the American Association of Independent Community Bankers. “He was getting about 4 percent interest before, and now he’s getting about 6.5 percent (mortgage interest rates).”
In this case, refinancing allowed Haney’s son to take cash out of his home’s equity to pay for the expenses and extend the repayment period over a longer period. This type of refinancing is called a cash-out refinance, and although it costs more, it’s still often less expensive than other forms of financing, like credit cards or home improvement loans.
Conclusion: Should you refinance in 2024?
If you can save on your monthly payments or need to pull cash from your equity, you may want to consider refinancing in 2024. However, interest rates are expected to continue to fall, so depending on your situation, you may want to consider waiting for a more favorable rate.
“There are a lot of factors to consider beyond, ‘What is the difference between my current rate and my new rate?'” Cohn says.
Whether you’re considering refinancing now or waiting to see how far interest rates fall, here are resources to help you prepare.
