3 Types of Homeowners Who Could Benefit from Refinancing Their Mortgage Now

3 Types of Homeowners Who Could Benefit from Refinancing Their Mortgage Now

When inflation soared in June 2022, interest rates quickly followed suit. The Federal Reserve responded with multiple rate hikes, pushing the federal funds rate to its highest level in decades by July 2023. As a result, mortgage rates shot up, leaving many homebuyers and homeowners with limited options.

But here's some good news: things are starting to change. Recent reports show that inflation is slowing, which has caused mortgage rates to fall slightly in anticipation of a potential rate cut from the Federal Reserve.

While many hoped for several cuts in 2024, at least one still seems likely this year. These small shifts might make refinancing worth considering for some homeowners.

Here are three types of homeowners who should think about refinancing their mortgage now.

1. Homeowners Who Bought Their Home in 2023

If you bought your home in 2023, you probably remember how high mortgage rates were. In fact, they hit 7.79% in November 2023, according to Freddie Mac. Right now, rates are averaging around 7%, which could mean significant savings if you refinance.

Just make sure to weigh the closing costs against what you’ll save with a lower rate. And remember, you need to stay in your home long enough to recoup those costs for refinancing to be worth it.

2. Homeowners Who Can Get a Rate a Full Percentage Point Lower

A good rule of thumb is that refinancing is worth it if you can get a new rate that's at least a full percentage point lower than your current one. This might be possible for some homeowners now, especially if you shop around for the best rates.

Even a reduction of half a percentage point could lead to substantial savings on your monthly payments and the total interest you pay over the life of the loan. It’s a good idea to crunch the numbers and see how much you could save.

3. Homeowners with an Adjustable-Rate Mortgage

If you have an adjustable-rate mortgage (ARM), your interest rate changes over time, sometimes going up and sometimes down. While this might have been beneficial in recent years due to low rates, it could be less appealing now with potential rate cuts on the horizon.

Refinancing from an ARM to a fixed-rate mortgage might make sense. A fixed-rate mortgage offers predictability and stability, which an ARM cannot. Plus, you might get a lower rate than your current adjustable rate.

The Bottom Line

Today's mortgage rates are still higher than what we saw in 2020 and 2021, but they're better than what many buyers secured in 2023. If you bought a home last year, the potential savings from refinancing could be significant. Similarly, if you can lock in a rate that’s a full percentage point lower than your current one, it might be worth considering.

And for those with adjustable-rate mortgages, refinancing to a fixed-rate mortgage could provide the stability and predictability you need. Take a close look at your situation to see if refinancing makes sense for you now.

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