Weekly mortgage rates tumble; should you refinance?

Mortgage rates plunged in the week ending Aug. 8 to their lowest since February 2023. The rapid decrease is likely to set off a wave of refinancing.

The 30-year fixed-rate mortgage plummeted 31 basis points, averaging 6.29%. That’s the lowest since the week ending Feb. 2, 2023.

Crucially, the 30-year mortgage has fallen more than a percentage point since a stretch that lasted from late August to the middle of November last year. It topped out at 7.95% the week before Halloween.

If your current mortgage rate is significantly higher than today’s rates, you could decrease your monthly payment by refinancing . But would it be wise to refinance now, or should you wait in the hope that interest rates will fall even more? Here’s how to approach the decision.

Compare rate you have with rate you could get

First, review your loan account to see your current interest rate, and compare it to current mortgage rates . If you got a mortgage last year from late August through November, there’s a good chance that current rates are about a percentage point lower.

Reducing the mortgage rate by a percentage point can save lots of money. Take the example of a $300,000 loan. With a 7.5% interest rate, a 30-year loan costs $2,098 a month in principal and interest. With a 6.5% rate, monthly principal and interest costs $1,896 a month, or about $201 less.

Is a difference of one percentage point enough to justify refinancing? It depends on who you ask. Some financial advisors say you should consider refinancing if you can shave half a percentage point off your current rate. Others recommend holding out until you can reduce your rate by two percentage points. Others recommend numbers between those two ends of the spectrum.

It’s not only about the interest rate

Finding a lower rate is the first of several steps. “Refinancing a mortgage involves several factors beyond just the interest rate,” said Steven Calio, a certified financial planner with CSG Financial in Dover, Delaware.

Those factors include closing costs , break-even time and how long you expect to keep the home.

Closing costs and breaking even

If you bought a house just a few months ago, you may remember the closing costs. They’re fees for services that are necessary to close the mortgage: loan origination, taxes and other costs. They tend to run about 2% to 6% of the loan amount.

To figure out whether refinancing is worthwhile, you can calculate the break-even period , which is how long it takes for the monthly savings to exceed the closing costs. You calculate this by dividing the closing costs by the monthly savings.

For example, let’s say you’ll pay $7,000 in closing costs to save $200 a month. When you divide 7,000 by 200, the quotient is 35. That means it will take 35 months for the accumulated monthly savings to equal the closing costs. In mortgage lingo, that’s a 35-month break-even period.

If you believe you’ll keep the home past the break-even period, you’re likely to save money in the long run by refinancing. NerdWallet’s refinance calculator can help.

Ways to minimize out-of-pocket costs

If you have sufficient equity, the lender might allow you to add some or all of your closing costs to the loan amount. That minimizes the amount you’ll have to pay at closing, but it increases the size of the loan and thus the monthly payments.

Alternatively, the lender could absorb most of the refinancing closing costs in return for charging you a higher interest rate — one that’s lower than on your current mortgage, but higher than the rock-bottom rate you could get by paying closing costs out of pocket.

This strategy makes it less onerous to refinance again in the future if rates fall again, said Noah Damsky, a chartered financial analyst for Marina Wealth Advisors in Los Angeles. “If you were paying $10,000 in upfront costs each time, it could mean refinancing is a one-time thing,” he explained.

Should you wait for rates to fall further?

A few weeks ago, economic forecasters for Fannie Mae, Mortgage Bankers Association and National Association of Realtors predicted that the 30-year mortgage would gradually fall, finally dipping below 6.5% in the middle of 2025.

However, this decrease wasn’t gradual, and it happened about nine months ahead of the predictions.

The suddenness of this drop raises a couple of questions: Will rates bounce back and take away some of this week’s progress? Will they fall even more?

And these two questions bring up a bigger one: Should you pass up this opportunity to refinance and, instead, wait for mortgage rates to fall even more? After all, no one wants to pay the closing costs to refinance now, and then pay the closing costs to refinance again.

“One of the biggest roadblocks to making a decision is the upfront cost to refinance,” Damsky said. “You would hate to refinance now, only for interest rates to drop another 1% later this year, then want to refinance again.”

The decision is a judgment call that only you can make. We’ll leave the last word to Gene Thompson, a certified financial planner and director of financial planning for Iconoclastic Capital in Rochester, New York: “Homeowners should base their decisions on what they’re paying now and how much they’ll save by refinancing. Don’t get caught up in guesswork about the future.”

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