Mortgage Rates Just Hit Their Lowest Level in 19 Months. Should You Refinance Now?

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It’s gotten less expensive to sign a mortgage. But read on to see if you should refinance now or wait. [[{“value”:”

If you signed your mortgage in 2023 or at some point earlier this year, there’s a good chance you weren’t thrilled with the interest rate you locked in.

Mortgage rates have been elevated these past couple of years on the heels of the Federal Reserve’s string of interest rate hikes to cool inflation. In fact, you may be counting down the days until you’re able to refinance your mortgage to a lower interest rate and lower your monthly payments in the process.

The good news is that mortgage rates just took a serious drop. But that doesn’t mean you should rush to refinance just yet.

Why waiting to refinance pays right now

For the week ending Sept. 12, the average 30-year mortgage rate was 6.2%. Now, that may not seem like a rate to celebrate at first. But it’s the lowest average 30-year mortgage rate recorded since February 2023.

And for context, roughly one year ago, the average 30-year mortgage rate was 7.12%. So if that’s the rate you locked in, 6.2% isn’t a terrible rate to refinance to.

The general advice for refinancing is that it pays to do so when you can shave at least 1 percentage point (1%) off of your mortgage rate. At this point, you’re just about there if you signed your mortgage at a little over 7%. But even so, waiting to refinance could be a smarter move.

The Federal Reserve is expected to move forward with a series of interest rate cuts — namely, to reverse some of the recent federal funds rate increases it implemented in 2022 and 2023. There’s a good chance we’ll see more than one rate cut in 2024, and additional cuts in 2025.

If you lock in a new mortgage now, you might lower your loan’s rate. But if you wait until 2025, you might manage to snag an even lower rate on a new loan. So for that reason, it’s worth sitting tight a bit longer.

You don’t want to refinance twice in short order

You may be wondering if it makes sense to refinance now that rates have fallen, and then try to refinance again in 2025. But the reason this move doesn’t pay off is that each time you refinance a mortgage, you’re charged closing costs.

Closing costs commonly amount to 2% to 5% of your loan. And it can take many months of savings on your mortgage to recoup your closing costs. You don’t want to pay these fees two times over within the same year.

For this reason, your best bet right now is probably to hang onto your current mortgage at least through early 2025, while taking steps to boost your credit score. These include paying bills on time and paying off any credit card balances you’re carrying.

If mortgage rates continue to fall in the new year, you’ll be in a better position to snag a great deal on a new home loan by virtue of not just market conditions, but the fact that your great credit makes you a good refinance candidate in the eyes of lenders.

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