![https://img.particlenews.com/image.php?url=0Czy4f_0vADCSH300](https://img.particlenews.com/image.php?type=thumbnail_580x000&url=0Czy4f_0vADCSH300)
Image source: Getty Images
If you signed your mortgage in 2020 or 2021, you're probably pretty happy with the rate you locked in. Back then, with decent credit, it was easy enough to sign a 30-year loan at 3% or lower.
But if you signed your mortgage in late 2022 or beyond, then you may not be as thrilled with your interest rate. That's because mortgage rates started to climb toward the 7% mark back then, and they've remained elevated ever since.
In fact, as of this writing, the average rate for a 30-year mortgage is 6.46%. Even if you locked in a rate at a little over 7%, that's probably not enough of a difference for a mortgage refinance to make sense.
But if you're hoping to refinance your mortgage, you should know that things are likely to change for the better in 2025. So you may want to take steps to boost your credit score now so you're able to refinance in the coming year.
Why more homeowners might have success refinancing in 2025
Part of the reason it's expensive to both sign and refinance a mortgage today is that the Federal Reserve's benchmark interest rate is sitting at a 23-year high. But the Fed is expected to start lowering its benchmark interest rate soon. From there, consumer borrowing rates are expected to drop across the board.
And we're not talking about a single rate cut. Rather, the Fed is expected to move forward with a series of rate cuts now that the pace of inflation has slowed. And the more rate cuts we see, the more mortgage rates are likely to fall. So all told, rates could be significantly lower in 2025.
As a general rule of thumb, if you're looking to refinance, it's best to do so when you can shave at least 1% or more off of your loan's interest rate. But if you signed your mortgage in the upper 6% range, there's a good chance you'll be able to lock in a new home loan in the 5% range at some point in 2025. So all told, we could see a pretty big uptick in refinances.
Set yourself up for success
If you expect to want to refinance your home loan in 2025, then one of the most important things you can do is boost your credit score. The higher that number, the more likely you are to get a great deal on a new mortgage.
To boost your credit score, aim to pay all bills on time to establish a solid payment history. That factor carries more weight than any other when calculating your score.
Next, try whittling down credit card balances. The lower your balances are relative to your total spending limit across your various credit cards, the more it can help your score.
Finally, check your credit report once a month for errors if you think you'll apply to refinance in 2025. Normally, you can get away with checking a bit less frequently. But if you know you'll be applying for a big loan soon, then it pays to be extra vigilant. You also want to give yourself plenty of time to resolve problematic errors that may appear on your credit report.
If you've been itching to refinance your mortgage, the time to pounce may come pretty soon. But for now, try to be patient. Mortgage rates are still a bit high despite having fallen in recent weeks. Come 2025, things could look a lot different -- in a good way.
We're firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers. The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.The Motley Fool has a disclosure policy .
Comments / 0