Is Now the Time to Refinance? 

If you’re contemplating refinancing your mortgage, you’re in good company. With recent fluctuations in mortgage rates and shifting economic conditions, it’s important to carefully evaluate whether now is the right time for you to refinance.  

Understanding the Current Mortgage Landscape 

Interest Rates: In 2024, mortgage rates have been fluctuating between the mid-6% and low 7% range. Recent reports suggest that rates have not dipped below 6.5% and may decrease further as the Federal Reserve adjusts its policies (1). This creates potential opportunity for refinancing, depending on your current mortgage rate. 

Key Factors to Consider Before Refinancing 

  1. Current Mortgage Rate vs. Market Rates 
  • Compare your existing mortgage rate with current market rates. If rates have significantly decreased, refinancing could be advantageous. For instance, if your current rate is 7.5% and the market rate is 6.5%, refinancing might offer considerable savings (2). 
  1. Credit Score Improvements 
  • An improved credit score can lead to better refinancing terms. If your credit score has risen since you took out your mortgage, you might qualify for a lower interest rate. For example, if your score improved from 620-639 to 660-679, you could potentially lower your interest rate by nearly a full point, saving you over $72,000 in interest over the life of a $300,000 loan (1). 
  1. Loan Terms and Your Financial Goals 
  • Refinancing allows you to adjust your loan term. Switching from a 30-year to a 15-year mortgage can reduce the total interest paid, although it will increase your monthly payments. Conversely, extending your loan term might lower your monthly payments but result in higher total interest costs (2). 
  1. Closing Costs and Break-Even Analysis 
  • Refinancing involves closing costs typically between 2% and 6% of the new loan amount. To see if refinancing is worth it, calculate your break-even point: 
  • Savings: Determine how much your monthly payment will drop. 
  • Costs: Add up the total refinancing costs (like closing fees). 
  • Break-Even Point: Divide the total costs by your monthly savings. This tells you how many months it will take to recover those costs. 

If you plan to stay in your home longer than this time, refinancing may be a good choice. If not, it might not be worth it.  

For example, if you save $200 per month and your closing costs are $5,000, you’ll break even in 25 months ($5,000 / $200) (2). 

  1. Home Equity and Cash-Out Refinancing 
  • If your home has increased in value or you’ve paid down a significant portion of your mortgage, a cash-out refinance might be an option. This allows you to access some of your home’s equity for other uses but be cautious as it could lead to higher monthly payments and potentially higher interest rates (1). 
  1. Eliminating Mortgage Insurance 
  • If you have private mortgage insurance (PMI), refinancing into a conventional mortgage might eliminate these costs, offering immediate savings. For FHA loans, refinancing into a conventional mortgage could help you remove mortgage insurance premiums (1). 
  1. Future Plans and Loan Type Changes 
  • Consider how long you plan to stay in your home. If you’re planning to move soon, the costs associated with refinancing might not be worth it. Additionally, if you have an adjustable-rate mortgage (ARM) and rates are expected to rise, refinancing to a fixed-rate mortgage might provide stability (2). 

When Refinancing Might Be Right for You 

  • Interest Rates Are Lower: Refinancing could be beneficial if current rates are lower than your existing rate. 
  • Improved Credit Score: A higher credit score can help you secure a lower interest rate. 
  • Desire to Shorten Loan Term: Refinancing to a shorter loan term can save you money on interest, provided you qualify to make higher monthly payments. 
  • Tapping Into Home Equity: A cash-out refinance might be advantageous if you need cash for home improvements or other expenses.  
  • Eliminating PMI: Refinancing to remove PMI or FHA insurance can lead to immediate savings. 

To explore your refinancing options, contact your Cornerstone Loan Officer or our Direct Lending team. We’re here to help you navigate your choices and make the best decision for your unique situation. 

Sources: 

  1. Yahoo Finance: Is Now a Good Time to Refinance Your Mortgage? 
  1. NerdWallet: When to Refinance a Mortgage: Is Now a Good Time? 

For educational purposes only. Please contact your Cornerstone Loan Officer or our Direct Lending team for specific guidance.