3 signs it's safe to refinance your mortgage again
Homeowners looking for a way to cut mortgage costs have been stuck with few options in recent years, thanks to an elevated inflation rate and a higher federal funds rate geared to lower the former. That left mortgage interest rates exponentially higher than they were just a few years ago, at one point hitting their highest level since 2000. But as inflation has steadily cooled from over 9% in June 2022 to just over 3% now, the interest rate climate has adjusted, too.
While still absent a formal cut to the federal funds rate (that could come later this year), some lenders have already started offering lower rates in anticipation. While not dramatically lower than what was being offered earlier this year, mortgage rates are seemingly on a downward trend, leading some homeowners to wonder about refinancing.
To that end, below we've broken down three signs that it may be safe to refinance your mortgage again.
Start by seeing how much lower a mortgage rate you can secure here now.
3 signs it's safe to refinance your mortgage again
Not sure if it's quite safe to refinance your mortgage? Here are three signs that it may be:
You can secure a mortgage rate one percentage point lower
Most experts agree that a new mortgage rate a full percentage point lower than your current one is worth refinancing to secure. So, for example, if your current mortgage rate is 8% or 7.50% and you can now lock in a rate at 7% or 6.50% (which is possible if you shop around for lenders), then it's a sign that it's safe and prudent to pursue a mortgage refinance now. Just make sure to account for closing costs and plan to live in the home long enough to recuperate those costs, otherwise, a mortgage refinance won't make sense for you, regardless of how much lower a rate you can potentially obtain.
Explore your mortgage refinance options online today.
You can secure a mortgage rate half a percentage point lower
While a mortgage rate half a percentage point lower isn't as optimal as a full percentage point, in some cases it still may be worth pursuing, especially if you think that the half-point drop is the best you can get for the foreseeable future. Not only will you save with your monthly mortgage payments, but you'll also save a substantial amount in interest over the loan's lifetime. For homebuyers who bought a home toward the end of 2023, for example, this scenario may already be available. So it makes sense to start calculating the potential savings now.
You want to get rid of your loan entirely
For many Americans, their mortgage payment is their largest one each month. But, in the face of inflation and high interest rates (not to mention higher borrowing costs), it may make sense to get rid of this loan entirely to refocus on other debts and expenses, instead. If you can refinance into a shorter loan term, then (like a 15-year mortgage) — and you can afford the condensed, higher payments — then it may be safe to pursue a refi, particularly if it allows you to reroute payments from your mortgage to other, high-interest debt. This circumstance is unique and is not broadly applicable, but can still be beneficial for select homeowners.
The bottom line
Homeowners looking for dramatically lower interest rates as motivation for refinancing may need to wait longer. But, for many, a mortgage rate that's a full percentage point (or even half a percentage point) lower than what they currently have may be valuable enough to pursue now. Some others, meanwhile, may find it both safe and smart to refinance to pay the loan off sooner than expected. Each homeowner's circumstances are different, however, so it's important to carefully weigh your options before deciding which refinance path is best for you.
