Lower refinancing rates are good news for homeowners. The current Refi rates, September 27, 2024

Now that the Federal Reserve has officially started lowering interest rates, homeowners can expect mortgage refinancing rates to gradually decline. Over the past two years, rising mortgage rates have meant that refinancing is not an option for most homeowners, as the vast majority currently have mortgage rates below 6%.

Now that interest rates are starting to fall, refinancing activity is slowly picking up. As mortgage rates decline, homeowners will benefit more financially from refinancing their home loans. For a closer look at this week’s mortgage forecasts, see here.

The Federal Reserve is starting to cut rates and mortgage rates are already lower. Get the best rate for your situation by comparing multiple loan offers from different lenders. Get a customized quote from one of CNET’s partner lenders by entering your details below.

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Current refinancing interest rate trends

As inflation has cooled and the Fed has moved to lower rates, mortgage refinancing rates have fallen significantly. Even before the central bank cut rates by 0.5% on September 18, mortgage rates began to fall, with the average mortgage rate now nearing 6.2%.

In one press conference After the central bank’s September policy meeting, Fed Chairman Jerome Powell said lower mortgage rates will help thaw the housing market, which has been frozen in place because of what’s known as the rate-lock effect. Homeowners who were able to secure cheap mortgage rates before 2022 were hesitant to refinance or sell their homes because they would end up with a more expensive mortgage rate.

Still, those who bought a home when mortgage rates were at their peak (especially when rates rose above 8% late last year) can already benefit from savings on their monthly payment through a refinance. With mortgage rates falling towards the mid-5% range, the rate lock-in effect should diminish and more homeowners will be able to jump into the market.

Where the refinancing interest rate will go in 2024

Although a 0.5% interest rate cut will not cause mortgage rates to drop by the same amount, it does offer a glimmer of hope in a difficult housing market.

It’s impossible to predict exactly where mortgage rates will end up because so much depends on economic data we don’t have yet. But with the Fed expecting additional cuts this year, there is still some room for mortgage rates to fall.

Most forecasts have 30-year mortgage rates at around 6% by the end of the year. Further into the next year, we could see mortgage rates drop to the mid-5% range. Much depends on how quickly and by how much the Fed cuts rates, but also on other factors, such as how the labor market will fare in the coming months.

Keep in mind that refinancing your mortgage is not free. Since you are taking out a brand new home loan, you will have to pay another set of closing costs. If you fall into that group of homeowners who purchased property when interest rates were high, consider contacting your lender and running the numbers to see if a mortgage refinance makes sense for your budget, said Logan Mohtashamichief analyst at HousingWire.

What does it mean to refinance?

When you refinance your mortgage, you take out a new home loan with which you pay off your original mortgage. With a traditional refinancing, your new home loan has a different term and/or interest rate. With a cash-out refinance, you tap your equity with a new loan that’s larger than your existing mortgage balance, allowing you to pocket the difference in cash.

Refinancing can be a good financial move if you have a low interest rate or if you can pay off your home loan in less time, but consider whether it’s the right choice for you. Lowering your interest rate by 1% or more is an incentive to refinance, which can significantly lower your monthly payments.

How to select the right refinancing type and term

The rates advertised online often require specific eligibility requirements. Your personal interest rate is influenced by market conditions, as well as your specific credit history, financial profile and application. If you have a high credit score, a low credit utilization ratio, and a history of consistent and on-time payments, you can generally get the best interest rates.

Refinancing with a 30-year fixed rate

For 30-year fixed refinances, the average interest rate is currently 6.19%, up 7 basis points from this period last week. (One basis point is equivalent to 0.01%.) A 30-year fixed refinance typically has lower monthly payments than a 15- or 10-year refinance, but it takes longer to pay off and typically costs more interest. in the long term.

Refinancing with a 15-year fixed interest rate

For 15-year refinances, the average interest rate is currently 5.39%, down 1 basis point from last week. Although a 15-year fixed refinance will most likely increase your monthly payment compared to a 30-year loan, you’ll save more money over time because you’ll pay off your loan faster. Additionally, 15-year refinancing rates are typically lower than 30-year refinancing rates, meaning you can save more in the long run.

Refinancing with a 10-year fixed interest rate

The current average rate for a 10-year refinance is 5.39%, down 6 basis points from a week ago. A 10-year refinance typically has the lowest interest rate but the highest monthly payment of all refinancing terms. A ten-year refinance can help you pay off your house much faster and save on interest, but make sure you can afford the steeper monthly payment.

To get the best refinancing rates, make your application as strong as possible by getting your finances in order, using credit responsibly and checking your credit regularly. And don’t forget to talk to multiple lenders and shop around.

Reasons why you might refinance your home

Homeowners usually refinance to save money, but there are other reasons to do so. Here are the most common reasons why homeowners refinance:

• To get a lower interest rate: If you can get an interest rate that is at least 1% lower than your current mortgage, it may make sense to refinance.
• To change mortgage type: If you have a variable rate mortgage and want more security, you can refinance to a fixed rate mortgage.
• To eliminate mortgage insurance: If you have an FHA loan that requires mortgage insurance, you can refinance it to a conventional loan once you have 20% equity.
• To change the length of a loan term: Refinancing to a longer term can lower your monthly payment. Refinancing to a shorter term will save you interest in the long term.
• To tap into your equity through a cash-out refinance: If you replace your mortgage with a larger loan, you can receive the difference in cash to cover a major expense.
• To remove someone from the mortgage: In the event of a divorce, you can apply for a new home loan in your name and use the money to pay off your existing mortgage.