Mortgage interest rates rose throughout most of 2023, soaring above an average of 7% for a 30-year, fixed-rate mortgage at one point. This meant that few homeowners refinanced their mortgage loans last year. After all, the main goal of a refinance usually is to end up with a new loan with a lower interest rate. That didn't happen last year.
But this year that might change.
It looks like mortgage interest rates won't be rising again this year. They might instead fall throughout the next 12 months. If you took out a mortgage loan last year, you might be able to refinance in 2024 to a new loan with a lower interest rate. And that could shave hundreds of dollars off your monthly mortgage payment.
How refinances work
In a refinance, you swap out your current mortgage loan for a new loan, usually at a lower interest rate. The goal of such refinances is to reduce your monthly mortgage payment.
Say you are paying off a 30-year, fixed-rate mortgage of $375,000 with an interest rate of
7.79%. Your monthly payment, not including your property taxes or homeowners insurance, comes to $2,696. If you owe $300,000 on that loan and you refinance that amount to another 30-year, fixed-rate mortgage at an interest rate of 6.62%, your monthly payment, again not including insurance or taxes, will come out to a much lower $1,920.
Should you refinance in 2024?
Is refinancing your mortgage a smart financial move this year? That depends on the interest rate attached to your current mortgage, how much you owe on your loan and how long you plan on staying in your home.
Remember that refinancing isn't free and could cost you from 1% to 3% of your loan amount. Refinancing a $300,000 mortgage could cost you $3,000 to $9,000. Make sure you'd save enough each year with your refinance to quickly cover these closing costs. To save enough money, the drop from your current interest rate to your new one would need to be a significant one.
How long you live in your home matters too. If you plan on moving shortly, such as in a year or two, you probably wouldn't save enough each month to cover the closing costs you'd pay for a refinance. But if you plan on living in your home for seven years or more, you'd be more likely to save enough over that longer period to make a refinance financially worthwhile.
The key is to speak with your mortgage lender. Your lender can tell you whether you'll qualify for a low enough interest rate to save money with a refinance. Your lender can also tell you whether you've built enough equity in your home — you typically need at least 20% equity — to qualify for a refinance in 2024.
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