Mortgage Refinancing Now Makes Sense for Some Homeowners. Here's Why (2024)

FAQs

Does it make sense to refinance right now? ›

A general rule of thumb is that it makes financial sense to refinance your mortgage if you can secure a rate that's at least 1% lower than the one you currently have. During the pandemic, mortgage interest rates hit historic lows and a rush of homeowners were able to refinance with lower interest rates.

Refinancing allows you to lengthen your loan term if you're having trouble making your payments. The downsides are that you'll be paying off your mortgage longer and you'll pay more in interest over time. However, a longer loan term can make your monthly payments more affordable and free up extra cash.

Refinancing to lower your monthly payment is great unless you're spending more money in the long-run. Moving to an adjustable-rate mortgage may not make sense if interest rates are already low by historical standards. It doesn't make sense to refinance if you can't afford the closing costs.

Refinancing for a Lower Interest Rate. One of the best and most common reasons to refinance is to lower your loan's interest rate. Historically, the rule of thumb has been that refinancing is a good idea if you can reduce your interest rate by at least 2%.

You might want to consider refinancing your mortgage in 2024, especially if you got your mortgage in the last year and interest rates fall, or your specific circ*mstances call for a new loan.

You may consider refinancing if any of these scenarios apply to you: Mortgage rates are lower than when you closed on your current mortgage. Locking in a lower interest rate will lower your monthly payment. Your financial situation has improved.

A longer-term loan could result in lower monthly payments, but higher overall costs. For instance, if you have 10 years left to pay on your current loan and you refinance to a 30-year loan, you could end up paying more in interest overall to borrow the money and have 20 extra years of mortgage payments.

You don't have to lose any equity when you refinance, but there's a chance that it could happen. For example, if you take cash out of your home when you refinance your mortgage or use your equity to pay closing costs, your total home equity will decline by the amount of money you borrow.

Homeowners are commonly disqualified from refinancing because they have too much debt. If your DTI is above your lender's maximum allowed percentage, you may not qualify to refinance your home. A low credit score is also a common hindrance.

Does refinancing hurt your credit? ›

Key takeaways

Refinancing a mortgage temporarily lowers your credit score. Refinancing can affect your credit score for up to one year while remaining on your credit report for up to two years.

It doesn't always make sense to keep refinancing your home simply because interest rates go down or your credit score goes up. Like your first mortgage, a refinance has closing costs. Each time you refinance, you'll have to pay fees, such as for the application, appraisal, credit check, attorney and title search.

The cost to refinance a mortgage ranges from 2% to 6% of your loan amount, and you can expect to pay less to close on a refinance than on a comparable purchase loan. The exact amount you'll have to pay depends on several factors, including: Your loan size. Your lender.

The proportion of households that refinance their mortgage varies considerably across regions of the country. In the U.S. overall, there were 42.1 mortgage refinances approved per 1,000 households with mortgages in 2022.

While interest rates aren't at historic lows anymore, other market factors like car values could make this a good time to refinance your car. However, whether it's a good time to refinance heavily depends on your credit situation. If you can get a lower interest rate, it's a great time to refinance.

Mortgage rates are unlikely to drop back down to the historic lows of 2020 and 2021, when 30-year fixed rates fell below 3%. But rates are expected to continue to ease throughout the next year or two, and it's possible rates could ultimately settle in closer to 5% in a few years.

Despite the time commitment and cost of refinancing, some scenarios warrant it early into your original home loan repayment. You want to lower your interest rate. Refinancing to a lower mortgage rate early into the repayment period can save you thousands of dollars over the loan term. Your credit scores have improved.

In most cases, you may refinance a conventional loan as soon as you want. You might have to wait six months before you can refinance with the same lender. But that doesn't stop you from refinancing with a different lender.