Should you refinance your mortgage with interest rates paused?
Homeowners looking to refinance in 2023 have mostly found themselves sitting on the sidelines. With mortgage rates hitting a 23-year high earlier this year and the benchmark interest rate at a 22-year high, refinancing wasn't beneficial for millions of homeowners. And compared to the 3% refinance rates of 2020 and 2021, it didn't make sense to act for many. That said, as the year has gone on the interest rate environment has changed.
While rates are still higher than they were, they have come down significantly in recent weeks. And, after the Fed elected to leave interest rates paused this week, they're likely to tick down further before a possible rate cut sometime later in 2024. So should you refinance your mortgage with interest rates paused? Or are you better served by waiting for an even better opportunity?
Start by exploring your mortgage refinance rate options here to see if it's worth it for you.
Should you refinance your mortgage with interest rates paused?
Here are three compelling reasons why you may want to refinance your home now.
Rates are lower
Mortgage refinance rates have dropped in recent weeks with the 15-year refinance rate at 6.61% as of December 14. That's down from around 7% at the end of October. So if you have a mortgage rate higher than that — and are comfortable with a condensed time frame to pay off your loan — it may make sense to act.
The details here are important, though. Most experts advise against refinancing unless you get at least one full percentage point off your current rate, so even a slightly reduced rate from what you're currently paying may not be worth it. You should also intend on staying in the current home long enough to break even on the mortgage refinancing closing costs. If not, a refinance may not calculate for you.
Crunch your mortgage refinancing numbers here to learn more.
The outlook is improving
While today's refinance rates aren't the approximate 2% they were in 2020, they're heading in the right direction and improving month-over-month. So while they may not quite be as low as you'd like they could be better soon. And with a new report this week showing inflation continuing to cool — and the Fed electing to keep interest rates unchanged yet again — "soon" could be months, if not weeks, away. So start shopping lenders and rates now to be prepared for a potential opening.
You can improve your financial situation
While a mortgage refinance is largely beneficial for the lower rates and savings it can provide, that's not the only benefit. By refinancing now, you could move from an adjustable-rate mortgage to a fixed-rate one. This will inject some predictability into your budget and prevent any future rate hikes. You can also refinance to rid yourself of private mortgage insurance (PMI) that you may have had tacked on if you didn't initially apply for your loan with a 20% down payment.
The bottom line
With interest rates on pause, Americans should take advantage by making a series of moves now. For some homeowners, this could be a good time to refinance their home. By doing so they can potentially lock in a lower rate and/or condense their loan term. And even if right now isn't the exact best time to act, it doesn't mean that it won't be soon, as the general economic outlook continues to improve. Finally, a mortgage refinance doesn't just mean extra savings via a new rate. It could also mean more predictability in your budget by refinancing from an adjustable-rate mortgage to a fixed-rate one. And you could potentially drop your PMI, too. For all of these reasons, it may make sense to refinance your mortgage now. Learn more here.
