Now that the Federal Reserve has officially started to lower interest rates, homeowners can expect mortgage refinance rates to gradually decline. Over the last two years, surging mortgage rates have meant refinancing isn’t an option for most homeowners, as the vast majority currently have mortgage loan rates below 6%.
Now that rates have started to go down, refinancing activity is slowly picking up. The lower mortgage rates fall, the more homeowners will financially benefit from refinancing their home loans. For a closer look at mortgage predictions this week, see here.
Today’s average refinance rates
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Refinance rate news
With inflation cooling, and with the Fed’s move toward easing interest rates, mortgage refinance rates have declined significantly. In fact, even before the central bank cut interest rates by 0.5% on Sept. 18, mortgage rates began to dip, with average mortgage rates now close to 6.2%.
In a press conference following the central bank’s September policy meeting, Fed Chair Jerome Powell said that lower mortgage rates will help thaw the housing market, which has been frozen in place due to what’s known as the “rate-lock” effect. Homeowners who were able to lock in cheap mortgage rates before 2022 have been hesitant to refinance or sell their houses since they’d end up with more expensive mortgage rates in the process.
Yet those who purchased a home when mortgage rates were at their peaks (particularly when rates surged above 8% late last year) can already take advantage of saving on their monthly payment through a refinance. As mortgage rates inch down toward the mid-5% range, the rate-lock effect should ease and more homeowners will be able to jump into the market.
Where will refinance rates end up in 2024?
While one 0.5% rate cut won’t trigger mortgage rates to plummet by the same amount, it provides a glimmer of hope in a difficult housing market.
It’s impossible to predict exactly where mortgage rates will end up since so much hinges on economic data we don’t yet have. But with the Fed projecting additional cuts this year, mortgage rates have some room to fall.
Most forecasts put the 30-year fixed mortgage rate at around 6% by the end of the year. Further into next year, we could see mortgage rates dip into the mid-5% range. A lot depends on how quickly and by how much the Fed cuts rates, as well as other factors, like how the labor market fares in coming months.
Remember, refinancing your mortgage isn’t free. Since you’re taking out a whole new home loan, you’ll need to pay another set of closing costs. If you fall into that pool of homeowners who purchased property when rates were high, consider reaching out to your lender and running the numbers to see whether a mortgage refinance makes sense for your budget, said Logan Mohtashami, lead analyst at HousingWire.
When you refinance your mortgage, you take out another home loan that pays off your initial mortgage. With a traditional refinance, your new home loan will have a different term and/or interest rate. With a cash-out refinance, you’ll tap into your equity with a new loan that’s bigger than your existing mortgage balance, allowing you to pocket the difference in cash.
Refinancing can be a great financial move if you score a low rate or can pay off your home loan in less time, but consider whether it’s the right choice for you. Reducing your interest rate by 1% or more is an incentive to refinance, allowing you to cut your monthly payment significantly.
How to select the right refinance type and term
The rates advertised online often require specific conditions for eligibility. Your personal interest rate will be influenced by market conditions as well as your specific credit history, financial profile and application. Having a high credit score, a low credit utilization ratio and a history of consistent and on-time payments will generally help you get the best interest rates.
30-year fixed-rate refinance
The average 30-year fixed refinance rate right now is 6.15%, a decrease of 19 basis points over this time last week. (A basis point is equivalent to 0.01%.) A 30-year fixed refinance will typically have lower monthly payments than a 15-year or 10-year refinance, but it will take you longer to pay off and typically cost you more in interest over the long term.
15-year fixed-rate refinance
The average rate for a 15-year fixed refinance loan is currently 5.46%, a decrease of 25 basis points compared to one week ago. Though a 15-year fixed refinance will most likely raise your monthly payment compared to a 30-year loan, you’ll save more money over time because you’re paying off your loan quicker. Also, 15-year refinance rates are typically lower than 30-year refinance rates, which will help you save more in the long run.
10-year fixed-rate refinance
The average 10-year fixed refinance rate right now is 5.53%, a decrease of 36 basis points from what we saw the previous week. A 10-year refinance typically has the lowest interest rate but the highest monthly payment of all refinance terms. A 10-year refinance can help you pay off your house much quicker and save on interest, but make sure you can afford the steeper monthly payment.
To get the best refinance rates, make your application as strong as possible by getting your finances in order, using credit responsibly and monitoring your credit regularly. And don’t forget to speak with multiple lenders and shop around.
Does refinancing make sense?
Homeowners usually refinance to save money, but there are other reasons to do so. Here are the most common reasons homeowners refinance:
To get a lower interest rate: If you can secure a rate that’s at least 1% lower than the one on your current mortgage, it could make sense to refinance. To switch the type of mortgage: If you have an adjustable-rate mortgage and want greater security, you could refinance to a fixed-rate mortgage. To eliminate mortgage insurance: If you have an FHA loan that requires mortgage insurance, you can refinance to a conventional loan once you have 20% equity. To change the length of a loan term: Refinancing to a longer loan term could lower your monthly payment. Refinancing to a shorter term will save you interest in the long run. To tap into your equity through a cash-out refinance: If you replace your mortgage with a larger loan, you can receive the difference in cash to cover a large expense. To take someone off the mortgage: In case of divorce, you can apply for a new home loan in just your name and use the funds to pay off your existing mortgage.