Buying a home has been pretty tough these last few years. The pandemic led to an inventory shortage, which in turn raised prices. Higher living costs made it more difficult to save up for a down payment, and mortgage interest rates went up, too.
But things are finally starting to turn around. The Federal Reserve recently cut the federal funds rate by 50 basis points (0.50%). This usually triggers banks to start lowering their rates as well, including mortgage rates. But if you’re waiting to refinance, I would still hold on a while longer.
More rate cuts are coming
The Federal Reserve’s September rate cut was the first one since 2020. But many see this as just the beginning of a rate-cutting cycle that’s likely to continue into next year. Some experts believe the Fed will cut rates once more in 2024, either at its November or December meeting.
Refinancing is something you want to do infrequently because you’ll have to pay closing costs again and do a bunch of boring paperwork. So it makes sense to wait a little while when you know rates are likely to drop further.
It’s impossible to say when this rate-cutting cycle will end. But it’s reasonable to expect that you may be able to snag an even more affordable rate if you wait until 2025 to refinance your mortgage.
How to get the best deal when refinancing your mortgage
To score the best deal on your mortgage refinance, compare offers from a few lenders before deciding which to work with. It’s best to get your applications in within about 30 days of each other if you can.
Lenders do hard inquiries on your credit report when you apply for a new loan or credit card. This can drop your credit score by a few points. But generally, all loan inquiries that happen within about a month are considered a single inquiry to account for normal credit-shopping behavior.
In the meantime, take other steps to increase your credit score to secure an even lower interest rate. You can do this by making regular, on-time payments whenever possible, paying down other debt, and resolving any errors that appear on your credit report. Check for these by viewing your free reports through AnnualCreditReport.com.
When choosing the right refinancing lender for you, don’t forget to examine the closing costs. These are generally 3% to 6% of the loan amount. You can roll these into your loan if you don’t have the cash to pay for them outright.
If you have any questions, reach out to the mortgage lender for more details. It’s a big decision, so you want to be clear about what you’re agreeing to before you sign on the dotted line.