Is it a good time to refinance my home 2023?
When Is a Good Time to Refinance? While 2023 will not be an ideal year to refinance, it could be the right move for some, depending on their financial situation and price difference with their current rate.
If you got your mortgage before 2023, your current rate might still be lower than if you locked in a new rate by refinancing now. If you bought your home when rates peaked, now could be a good time to refinance — but you may want to wait until rates are even lower.
After hitting record-low territory in 2020 and 2021, mortgage rates climbed to a 23-year high in 2023. Many experts and industry authorities believe they will follow a downward trajectory into 2024. Whatever happens, interest rates are still below historical averages.
If your goal is to get a lower interest rate, right now isn't the best time to refinance. You're likely to end up with a higher rate, plus you'll need to pay closing costs on your new mortgage. If you can hold off, mortgage rates are expected to slowly trend down over the next couple of years.
The winter holiday season is a traditionally slow time in the real estate market; homeowners want to relax and avoid having prospective buyers visit their homes. Therefore, the demand for mortgage money is less, so lenders lower the spread in order to attract new business. This can be a great time to refinance.
The answer to this question usually depends on current mortgage market conditions. Generally speaking, now isn't an ideal time for most borrowers to refinance, because rates are generally still higher than what most borrowers are paying. But rates have dropped a bit recently, and they should go down further in 2024.
A basis point is one one-hundredth of a percentage point. Even so, most housing market experts expect rates to decline over 2024, especially once the Federal Reserve begins cutting the federal funds rate—the overnight borrowing rate for commercial banks and credit unions that indirectly influences mortgage rates.
Historically, the rule of thumb is that refinancing is a good idea if you can reduce your interest rate by at least 2%. However, many lenders say 1% savings is enough of an incentive to refinance. Using a mortgage calculator is a good resource to budget some of the costs.
Mortgage rates are likely to trend down in 2024. Depending on which forecast you look at for housing market predictions in 2024, 30-year mortgage rates could end up somewhere between 5.8% and 6.1% by the end of the year.
Legally speaking, there's no limit to how many times you can refinance your mortgage, so you can refinance as often as it makes financial sense for you. Depending on your lender and the type of loan, though, you might encounter a waiting period — also called a seasoning requirement.
What is not a good reason to refinance?
Don't refinance if you have a long break-even period—the number of months to reach the point when you start saving. Refinancing to lower your monthly payment is great unless you're spending more money in the long-run.
As such, refinancing might not be worth it if: You've been paying your original loan for quite some time. Refinancing results in higher overall interest costs. Your credit score is too loan to qualify for a lower rate.
Owners with high mortgage rates
One of the primary reasons to refinance is to pay less each month by paying a lower interest rate than you had previously secured. So if you have a rate higher than what's currently available, you may be able to start saving by refinancing to the lower prevailing rate.
Refinancing your mortgage does not have to negatively impact your home equity. Just the opposite, in fact: The goal of a refi generally is to get a new loan with lower interest rates, making repayments easier and allowing you to build equity faster.
A recession may be a good time to lock in a lower fixed rate on a mortgage refinance, if you qualify. However, be cautious about taking on new debt until you see signs that the economy is recovering.
Refinancing will hurt your credit score a bit initially, but might actually help in the long run. Refinancing can significantly lower your debt amount and/or your monthly payment, and lenders like to see both of those. Your score will typically dip a few points, but it can bounce back within a few months.
The refinancing boom evaporated in 2022 when the Fed hiked its interest rates steeply to combat inflation, and mortgage rates followed suit—the average last week was 6.35%. That's led to a situation where many current homeowners feel “locked in” by their low mortgage rates even if they have other good reasons to move.
This practice is sometimes called “buying down the interest rate.” Each point the borrower buys costs 1 percent of the mortgage amount. So, one point on a $300,000 mortgage would cost $3,000. In effect, mortgage points are a type of prepaid interest.
A 2023 Roller Coaster for 30-Year Mortgage Rates
While it's true that 2022 was a remarkable year for 30-year mortgage rates, surging almost 4 percentage points between December 2021 and December 2022, it was 2023 that sent 30-year mortgage rates into the historic stratosphere.
Refinancing the mortgage on your house means you're essentially trading in your current mortgage for a newer one – often with a new principal and a different interest rate. Your lender then uses the newer mortgage to pay off the old one, so you're left with just one loan and one monthly payment.
Does refinancing a house make it cheaper?
Why refinance your mortgage? You can lower your monthly payment – If you have a fixed-rate mortgage with a rate higher than market rates today, refinancing could help save you money on your monthly mortgage payment.
“The housing market is off to a good start this year, as consumers benefit from falling mortgage rates,” said NAR chief economist Lawrence Yun in the association's December pending home sales report. NAR forecasts that sales will rise by 13 percent in 2024.
The National Association of Realtors expects mortgage rates will average 6.8% in the first quarter of 2024, dropping to 6.6% in the second quarter, according to its latest Quarterly U.S. Economic Forecast. The trade association predicts that rates will continue to fall to 6.1% by the end of the year.
May 2024: A Steady Path
May follows a steady path in 15-Year Mortgage Rates, featuring a maximum interest rate of 7.24%, a minimum of 6.82%, and an average for the month at 7.03%.
Conventional refinance: For conventional refinances (including cash-out refinances), you'll usually need at least 20 percent equity in your home (or an LTV ratio of no more than 80 percent).
