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

FAQs

Does it make sense to refinance a home 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.

Key Takeaways

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.

One of the best and most common reasons to refinance is to lower your loan's interest rate.

Mortgage rate predictions 2024

The MBA forecast suggests that 30-year mortgage rates will fall to the 6.6% by the end of 2024, while Fannie Mae and NAR predict rates will end the year around 6.7%. However, current mortgage rates are already technically below these levels.

Moving into a longer-term loan: If you're already at least halfway through the loan term, it's unlikely you'll save money refinancing. You've already reached the point where more of your payment is going to loan principal than interest; refinancing now means you'll restart the clock and pay more toward interest again.

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.

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.

As a rule of thumb, experts often say that it's not usually worth it to refinance unless your interest rate drops by at least 0.5% to 1%. But that may not be true for everyone.

Fortunately, you can refinance as often as it makes financial sense to do so. A mortgage refinance can help you manage your money more effectively as well as lower your interest rate, remove private mortgage insurance or take cash out of your equity.

Reasons It May Be Worth It To Refinance

A shorter loan term means that you pay it off quicker, build up equity faster and spend less in interest over time. In combination with a lower interest rate, that can further lower the overall cost of your loan.

How many times can you refinance a house? ›

There is no limit on how many times you can refinance your mortgage, although lenders may enforce a waiting period, typically around six months, known as a 'seasoning' requirement.

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.

Mortgage rate predictions

Experts also don't expect any drastic dips in rates — say to 3% or 4%, as experienced during the height of the COVID-19 pandemic.

Mortgage rates could fall but not below 6%

As a result, he says most forecasts expect mortgage rates to remain above 6% into late 2025. "Two forecasts worth keeping an eye on are from the Mortgage Bankers Association and Fannie Mae," says Cook.

You may end up in more debt

You also need to have a clear idea of how you'll use the money you free up when you refinance. This is particularly true if you plan on cashing out your equity.

You must be on the home title for at least six months for a cash-out refinance (some exceptions apply). Any time for a simple or rate-and-term refinance; after seven months for a streamlined refinance; after 12 months for a cash-out refinance (can vary by lender).

“Mortgage rates are likely to continue easing over the next few months, and likely end the year around 6.5% and be in the 6-6.5% range throughout 2025,” Sunbury tells Forbes Advisor, anticipating rates making their way down to the 5.5% to 6% range in late of 2025, and then remaining roughly in that range for the longer ...

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.