Should you refinance your mortgage now that rates are falling? What experts say

Over the last couple of years, sky-high mortgage rates have made mortgage loan refinancing less appealing for homeowners. Those who got low mortgage rates during the pandemic saw no reason to refinance. Meanwhile, those with higher rates often found closing costs would eat up potential savings.

But the tide may be turning — and it could affect your mortgage decisions. While interest rates are still high compared to historical averages, they've recently dropped to a 15-month low. If you secured a loan in the last 18 months, you might wonder: "Is it time to refinance? Could I save money by acting now? Or should I see if rates drop further?"

To help you make an informed choice, we spoke with seasoned mortgage loan consultants. They shared their perspectives on when to refinance, when to hold off and what considerations you should weigh.

Find out the top mortgage loan rates you could qualify for here.

Should you refinance your mortgage now that rates are falling? 

The answer to that question is: It depends. Factors such as your current financial situation, the rate you initially secured and how long you've had your mortgage determine whether refinancing is the right move.

When refinancing could make sense

Refinancing is typically wise when it leads to significant savings over time. Josh Green, loan originator at Barrett Financial Group, suggests that a rate drop of 0.75% to 1% often justifies refinancing. This reduction typically covers the closing costs and associated expenses, allowing you to start saving money sooner.

Green points out the importance of looking at the breakeven point — which is the time it takes for your savings to outweigh the refinancing costs. 

"In my opinion, you should aim to lower your monthly payment enough to cover those costs within 24 months or less," Green says.

Rhonda Hummel, mortgage consultant at Prosperity Home Mortgage, adds that other factors can make refinancing attractive. 

"Home values have increased, lowering the loan-to-value (LTV) for some borrowers, which could lead to a better rate," Hummel says. 

For example, if your home's value increased from $300,000 to $350,000 while you still owe $270,000, your LTV would drop from 90% to around 77% — potentially qualifying you for a better rate.

Your credit score can also impact your decision. If it has improved since your original mortgage, you might qualify for more favorable terms. Even a small boost in your score could translate to big savings over your loan's lifetime.

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When it may be better to refinance later

Even when the numbers are favorable at first glance, refinancing isn't always the best long-term strategy. Hummel shares an example that illustrates this complexity: "If you had a $1,000,000 loan at 7.50% and today's rate is 7.00%, with closing costs of $4,500 for a 'No Point' refinance, you'd save $338 monthly. The breakeven point would be eight months."

While this scenario meets the typical criteria for a beneficial refinance, "you could end up paying multiple fees on several refinances if rates continue to fall," Hummel says. This highlights a key consideration: Refinancing too frequently can erode potential savings through repeated closing costs.

You also want to look at the size of your mortgage loan. 

"The benefits of refinancing are influenced by the loan size as many costs to refinance are static," says Dean Rathbun, loan officer at United American Mortgage Corporation. 

For mortgages under $250,000, the standard 1% rate reduction often doesn't generate enough savings to justify the costs. In these cases, waiting for a larger rate drop or exploring other financial strategies might be more prudent than rushing into a mortgage refi.

Factors to consider before refinancing

Before you commit to refinancing, our experts suggest thinking about these key factors:

• Length of stay: How long you plan to remain in your home affects the potential savings from refinancing.
• Loan term: Shortening your mortgage loan term can help you save on interest, while extending it may lower payments but increase the total interest paid.
• Future life changes: Consider upcoming events like retirement that could impact your future income and qualifying ability.
• Market timing: Weigh the risks of waiting for potentially lower rates against current savings opportunities.

The bottom line

Though no one has a crystal ball for a mortgage interest rate forecast, Green believes we're in the early stages of a rate-dropping cycle. "If the Federal Reserve goes through with a rate cut, mortgage interest rates could continue to drop for the next 12 months or even longer," he says. But waiting comes with risks. If you bought at peak rates and have a sizable loan, refinancing now could start saving you money. Holding out might lead to better rates later — but future market conditions are uncertain.

Your best mortgage move? Talk to several lenders. Know and discuss your options, get personalized rate quotes and be prepared to act quickly when the conditions are right. The ideal time to refinance is when it makes sense for your unique situation — not when rates hit a certain number.