Is a mortgage refinance worth it now? Here's why it may be.
When mortgage interest rates dropped dramatically in 2020 and 2021, many homeowners took the opportunity to refinance their existing loans to the new, lower rates. But as inflation became problematic, rising to a decades-high in June 2022, the federal funds rate soared with it, growing to its highest level in 23 years. Since that point, however, inflation has steadily declined and talk of a cut to the federal funds rate has increased. Now, according to the CME FedWatch tool, there's a more than 80% likelihood that the Federal Reserve will cut that rate by 50 basis points when it meets again in September.
But a formal interest rate cut doesn't necessarily have to take place for borrowers to see financial relief. So, right now, there's a strong argument to be made for pursuing a refinance. Below, we'll break down three reasons why it could be worth it now.
Start by seeing how low of a mortgage refinance rate you can secure here.
Why a mortgage refinance could be worth it now
Here are three reasons why a mortgage refinance could be worth pursuing this August:
Rates are low
The average 15-year refinance rate is currently just 6.27% while a 30-year refinance rate is 6.82%, according to Bankrate. But that's based on a collection of national averages. With a little shopping around, you should be able to find refinance rates closer to 6% today – and that's absent a formal rate cut.
For homeowners who have rates of 7% or higher now, then, a refinance today is probably already worth it. And while the conventional wisdom argues that a full percentage point drop justifies refinancing, even half a percentage point could be worth it right now. To get that lower rate, however, you'll need to start shopping around right away.
Rates could drop further in the weeks to come
As inflation has steadily cooled, interest rate cuts have appeared more likely. And while that was expected to begin with a 25 basis points cut in September, current economic concerns could lead to that cut being a full 50 basis points instead (from a range between 5.25% to 5.50% now down to 4.75% to 5.25%).
If and when that happens, rates on mortgages and mortgage refinances could drop further. So if you start shopping for lenders today and crunch the potential savings you stand to get back, the timing could work out perfectly for a refinance later this month or in September.
You need the extra money
The average home price right now is $398,000. With no down payment, that equates to a monthly mortgage of $2,648 at 7%. But at 6.50%, that same payment drops to $2,516, a $132 difference — and at 6%, it's $2,386, which gives homeowners $262 back each month.
And if rates decline further when the Fed finally does issue a rate cut, homeowners will be positioned to put even more money back in their pockets. So if you need the extra money or have an extra few bills that the difference can cover, now is the time to act.
The bottom line
The timing surrounding a mortgage refinance loan is highly personal and specific to the individual. But, this August, with mortgage refinance rates already declining and the potential for them to fall further seemingly growing by the day, now could be a smart time to act. By doing so, homeowners can potentially save hundreds of dollars or more on their monthly mortgage payments. It's critical, however, to weigh the costs of refinancing against any potential savings before acting. Homeowners will want to remain in their homes long enough to recuperate those mortgage refinancing costs. So if a home sale looks possible, a refinance may not be worth it.
