Is Now a Good Time To Refinance Your Mortgage With Interest Rate Hikes Paused?
Written by
Dawn Allcot
Edited by
T. Woods
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The Federal Reserve decided recently not to boost interest rates at the last Federal Open Market Committee meeting. Thus, if you’ve been considering refinancing your mortgage, you might think it’s time to strike while mortgage rates are lower than they’ve been since June 2023.
According to figures from Freddie Mac, a fixed 30-year loan currently carries an average rate of 6.67%. It’s the second week in a row that rate has dipped below 7% after 17 weeks above the 7% mark. Yet some experts believe 2024 could bring interest rate cuts from the Fed and, as a result, even lower mortgage rates.
As such, here are some reasons you may want to re-fi now.
You Can Save More Than One Percentage Point with a Re-Fi
Experts typically recommend not refinancing unless you can shave a full percentage point of your current mortgage rate, according to CBS News. With 15-year rates averaging 5.95% as we head into the final week of 2023, you may be able to snag some savings if you are willing to accept a shorter loan term.
If your credit score or financial situation has changed dramatically since you purchased your home, you may even be able to secure a lower interest rate with a 30-year mortgage. Just make sure that you’ll be staying in your home long enough to make re-financing worthwhile after you factor in closing costs.
You Want to Transition to a Fixed Rate
If you took out an adjustable-rate mortgage, it might be a good time to transition to a fixed-rate loan. This way, you can stabilize your household budget and hedge against potential future rate hikes.
You Want to Eliminate PMI Payments
If you are paying Private Mortgage Insurance (PMI) because you put less than 20% down on your home, refinancing might help you eliminate those payments. If your new loan-to-value ratio is 80% or less, your new mortgage won’t have PMI tacked on, according to Better.com.
You Want to Do a Cash-Out Re-Fi to Pay Off Higher Interest Debt
If you’re struggling with high-interest credit card debt like so many Americans, a cash-out re-fi allows you to tap into the equity of your home to pay off that debt. If you can secure a lower interest rate, keep your mortgage payments roughly the same, and pay off debt with the additional funds you’re borrowing, a cash-out re-fi could put you in a more secure financial position going into 2024.
Mortgage Rates Aren’t Likely to Hit 5% Until Late 2024
At the last FOMC meeting, members of the U.S. Federal Reserve penciled in three rate cuts of a quarter percentage point each for 2024. That would lead to a drop of 75 basis points total. With mortgage rates still well over 6% right now, those decreases in the prime rate still would not bring 30-year fixed rate mortgages down to 5% or less.
If you purchased your home at 7% or more, or if you have an adjustable-rate loan, you could put money in your pocket for 2024 by refinancing right now instead of waiting another year.
“Regardless of what the Fed does with respect to rates, I would never advise prospective homebuyers to try to time the market or trajectory of mortgage rates,” Bob Driscoll, SVP and Director of Residential Lending at Rockland Trust Bank, told CBS News. The same logic applies to those looking to re-finance.
If refinancing can save you money, provide fixed monthly payments versus the insecurity of an adjustable-rate mortgage or help you pay down debt, it might be time to start shopping for a new loan.
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