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If you signed a mortgage in 2023 or 2024, there's a good chance you weren't so happy with the rate you locked in. Mortgage rates , like all borrowing rates, have been elevated for the past couple of years on the heels of the Federal Reserve's numerous rate hikes that were put in place to cool inflation.
Thankfully, though, the Fed's tactics worked. Inflation has slowed enough that the Fed is planning for multiple interest rate cuts.
The central bank made its first rate cut in mid-September. And it's likely to follow up with at least one more before the end of 2024. Rate cuts could then continue well into 2025.
For this reason, 2025 could be a great time to refinance your mortgage . And there are steps you can take to make sure refinancing pays off as much as possible in the new year.
Don't refinance your mortgage just yet
As of Sept. 19, the average interest rate on a 30-year mortgage was 6.09%. That's the lowest average rate since February 2023. And you may be itching to refinance now seeing as how rates are down.
Being patient, however, could pay off big time. Since the Fed is planning on more rate cuts, waiting until those happen could let you lock in an even lower refinance rate.
You're generally better off waiting until 2025 to refinance rather than applying now. The only reason to apply this minute is if you're paying much more than 6.09% on your home loan and you can't afford your mortgage payments.
How low will mortgage rates fall in 2025? That's hard to predict. But it's fair to assume that they'll fall into the 5% range next year. So if you signed your mortgage at 6.95%, you're better off refinancing to a rate of 5.85% than 6.09%, as that'll only mean more savings for you.
Set yourself up for refinancing success
Another reason you may want to wait to refinance your mortgage? If your credit score needs work, raising it between now and the new year could lead to an even more competitive refinance offer.
You can boost your credit score in a number of ways. Paying bills on time is definitely helpful, and so is reducing balances on your credit cards if you can afford to do so.
Also, check your credit report for errors to make sure there aren't mistakes on there that make you seem like a less trustworthy borrower (for example, late payments for bills you actually paid on time). Your best bet is to pull a copy from each of the three credit bureaus -- Experian, Equifax, and TransUnion.
You're eligible for a free copy of your credit report every week from AnnualCreditReport.com, so this step shouldn't cost you anything. And contrary to what you may have heard, checking your credit report does not impact your credit score in any way.
Refinancing a mortgage could very much make sense in 2025. Even though we don't know exactly what interest rates will look like next year, the general consensus is that they're expected to be lower than where they are today. That could open the door to a lot of savings on your housing payments, especially if you can apply for a refinance with a boosted credit score.
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