If you got your mortgage when rates were high, chances are, you want to refinance to a lower rate. Now that mortgage rates are on a downward trend, how will you know when it’s the right time to commit to a refi?
It depends on several factors, like how long you plan to stay in the home, the size of your mortgage and where you live, says Melissa Cohn, regional vice president at William Raveis Mortgage.
Let’s look at where mortgage rates could be headed and what you should consider when thinking about refinancing in 2024 and beyond.
Will mortgage rates go down further this year?
After record low rates, mortgage rates started rising in 2022 due to Fed rate hikes. In October 2023, mortgage rates peaked above 8 percent, but they have since drifted downward, with recent economic data in August sending rates below 7 percent. As of September 18, the 30-year fixed rate was at 6.20 percent, according to Bankrate’s survey of the nation’s largest lenders.
The Fed opted to cut rates by 0.50 percent at its September 18 meeting due to weakening employment and economic conditions, says Cohn. It’s possible that rates will fall further this year, whether due to additional rate cuts, lowered bond yields or both.
Fixed-rate mortgages — the most popular type of home loan — fluctuate with the 10-year Treasury yield. This figure is influenced by many factors, including Fed policy. According to Cohn, bond yields are likely to continue to drop, sending mortgage rates to follow suit, and this could result in rates dropping another 0.25 percent to 0.50 percent by the end of the year without another Fed rate cut.
Others think more needs to happen before rates can fall any further.
“Looking forward, it does look like the mortgage rates have priced in many of these future rate cuts. For rates to drop further, I think we will need to see further labor market softening,” says Michael Becker of Sierra Pacific Mortgage.
The return of the ‘serial refinancer’
Many borrowers in recent years have settled for a higher mortgage rate, hoping to refinance in the future. If rates trend lower, some might look to refinance more than once. “A lot of homeowners with 7.5 percent to 8 percent mortgage rates now may become serial refinancers if mortgage rates continue to drop over an extended period of time,” says McBride.
A refi-and-repeat strategy could work for you, but keep in mind: You’ll pay closing costs every time you refinance, and you can only do it after a “seasoning” period, typically at least six months from the time you closed the original loan.
The state you live in can have a big impact on whether you want to refinance frequently, says Cohn. That’s because states levy different fees and taxes when refinancing. “In states where the costs are high (such as New York state), borrowers are less likely to repeatedly refinance,” says Cohn. “Looking for loans where you can modify the rate post closing is the win-win solution for borrowers.”
When will refinancing save you money?
Our mortgage refinance breakeven calculator can help you estimate exactly when you’ll recoup the costs of refinancing. Here’s an example assuming a borrower with a 30-year fixed-rate loan who decides to do a 30-year refinance after five years. This example also assumes $7,000 in closing costs.
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Note: These monthly payments include loan principal and interest payments, not taxes, insurance or other fees. |
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Loan amount |
$303,280 |
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Current mortgage rate |
7.12% |
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Current payment |
$2,042 |
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Rate after refinancing |
6.2% |
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New payment |
$1,751 |
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Breakeven point |
23 months |
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Monthly savings |
$292 |
Note that closing costs can vary considerably according to your location, your loan amount and the lender you choose. Lower interest rates may translate to higher fees and vice versa. Always compare multiple offers, examining rates and fees, to make sure you get the best deal.
Is it ever OK to refinance to a higher rate?
The main objective of refinancing is to obtain a lower interest rate and save money.
That doesn’t mean you can’t refinance in times of higher interest rates, however. Some borrowers refinance due to personal circumstances such as divorce or unexpected medical bills.
“Going from personal experience, my own son had a particular need to refinance, so he did,” says Ron Haynie, senior vice president at the Independent Community Bankers of America. “The rate he had before was about 4 percent, and he now has [a mortgage rate] around 6.5 percent.”
In this case, refinancing allowed Haynie’s son to pull cash out of his home’s equity to pay for necessary costs and stretch the repayment out over a long loan term. This type of refinancing, called a cash-out refinance, costs more, but still often comes cheaper than other forms of financing like a credit card or home improvement loan.
Bottom line: Should you refinance in 2024?
If you can save on your monthly payment or need to pull cash out of equity, you may want to consider refinancing in 2024. However, as rates are expected to continue to fall, you might consider waiting for a more favorable rate, depending on your situation.
“There are so many more factors that you have to take into consideration other than just, ‘What’s the difference between my rate and what the new rate is?’” says Cohn.
Whether you’re considering refinancing now or waiting to see how far rates drop, here are resources to help you prepare:
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