Mortgage Rates Are Going Down. Should You Refinance Your Mortgage Now?

The offers and details on this page may have updated or changed since the time of publication. See our article on Business Insider for current information.

Affiliate links for the products on this page are from partners that compensate us (see our advertiser disclosure with our list of partners for more details). However, our opinions are our own. See how we rate mortgages to write unbiased product reviews.

• Mortgage rates are the lowest they've been since early 2023, which means more borrowers could save by refinancing.
• Not everyone will benefit from refinancing. But if you can snag a lower rate, it could be worth it to refinance now.
• Mortgage rates may drop even further in 2024 and 2025, so you could save more by waiting to refinance.

Interest in refinancing is up in response to lower mortgage rates . Last week, mortgage refinance applications ticked up 59% from a year ago, the highest level in two years, the Mortgage Bankers Association reported.

Mortgage rates have dropped rapidly in recent weeks, and they're expected to go down further this year . If you have a mortgage, you might be wondering if now is the time to take advantage of lower rates by refinancing. Here's what homeowners should know.

Mortgage rates are the lowest they've been in over a year

Average 30-year mortgage rates recently dipped below 6%, the first time they've done so since February 2023, according to Zillow data.

Mortgage rates fluctuate based on a variety of different factors , including macroeconomic trends and Federal Reserve policy moves. Refinance rates often run slightly higher compared to rates on loans being used to purchase a home.

Right now, mortgage rates are down in response to decelerating inflation, unexpected weakness in the labor market , and expectations that the Fed will cut the federal funds rate more aggressively than initially anticipated throughout the remainder of 2024 to avoid an economic downturn.

More homeowners are refinancing. But is it the right time?

Because rates have dropped so low recently, homeowners who originally got their mortgages when rates were higher could potentially save money by refinancing. But how many people actually stand to benefit? It depends on your current mortgage rate.

The good news is that if you're a more recent homebuyer with a high rate, it's possible that refinancing could be the right move for you. But remember to consider the full cost of a mortgage refinance, not just your rate.

"If you bought your home in the past year or so at the peak of the rate cycle, you may want to consider refinancing now, as rates can be a full 1% lower today," says Melissa Cohn, regional vice president at William Raveis Mortgage .

Most homeowners with a mortgage probably wouldn't benefit from refinancing right now. Before they started rising in 2022, mortgage rates were at historic lows. In fact, a Redfin analysis of Federal Housing Finance Agency data from the third quarter of 2023 found that 88.5% of homeowners paying a mortgage had an interest rate below 6%. That said, rates were unusually low due to the pandemic, and experts don't expect rates to go that low again in the foreseeable future

"It's always a good time to refinance when homeowners can lower their payments without paying fees," says Dan Green, publisher of Homebuyer.com . He adds, "The best refinance rate in the world doesn't matter if you're paying hefty fees."

How to decide if refinancing is right for you

Whether it makes sense to refinance depends on the math of your individual situation. Look at how much you could pay to refinance versus how much you'll save every month.

For example, say you'll pay $5,000 in closing costs to refinance your current mortgage, which is what Freddie Mac says is the average for a refinance (though it varies depending on the details of your loan). With this refinance, you lower your rate and snag a new monthly payment that's $200 less than what you currently pay. This means it will take 25 months (5,000 ÷ 200 = 25), or a little over two years, to break even on your refinance.

Cohn says homeowners should think about refinancing if they plan to stay in their home for at least three more years and can recoup their closing costs in 18 months or less.

And if you want to minimize your upfront costs, Green advises homeowners to weigh the benefits of having the lender cover them.

"Mortgage lenders will often rebate closing costs in exchange for a higher mortgage rate," he says. "In a normal market, lenders offset roughly $1,000 in closing costs per $100,000 borrowed for every 0.25 increase in rate."

Because you'll take on a higher interest rate with this option, make sure you can still save enough on your mortgage payment to make it worth it.

Shopping around and comparing rates and fees from multiple mortgage lenders can also help you keep your costs down. Aim to get quotes from at least three or four different lenders to see who can offer you the best overall deal.

Should you wait for rates to drop more?

But wait, aren't mortgage rates supposed to drop even more? Why refinance now?

"With the knowledge that rates are likely to drop over the next year or two, you should consider waiting until they are low enough that you won't want to refinance again in 12 months," says Cohn.

If you're comfortable holding off, this can also give you some additional time to save more money for your closing costs and improve your credit score .

While it looks likely that mortgage rates will come down further, there's no guarantee that lower rates will materialize, or that they'll drop low enough for borrowers to get a significantly better deal than they can right now.

There's also no limit to the number of times you can refinance (though some types of mortgages and refinances come with mandatory cooling off periods after getting a new loan). Green says that it could make sense to refinance now and again if rates drop down the road, as long as you can keep your out-of-pocket costs low.

"Homeowners can refinance as often as they like so if you prefer two small reductions now to one big reduction later, go for it," Green says.