Does mortgage refinancing make sense this fall? Here's why it could

With decades-high inflation finally showing signs of waning, the Federal Reserve is likely to finally implement a long-anticipated rate cut at its upcoming September meeting. 

Although the Federal Reserve doesn't have direct control over mortgage rates, lowering the benchmark rate is widely expected to reduce the high mortgage rates that have frustrated would-be home buyers in the post-pandemic era. 

With a lower mortgage rate comes new opportunities to refinance a home loan at a competitive cost. While refinancing isn't right for everyone, there are some situations when homeowners should seriously consider making this move, even now. Below, we'll break down three of them.

See how low of a mortgage refinance rate you could secure here now.

3 reasons to refinance your mortgage this fall

Not sure if a mortgage refinance is the right move for you now? It can be if any of the following three scenarios apply to you:

You could reduce your rate if you locked in at the peak

Mortgage rates peaked at an average of 7.79% during the post-pandemic rate surge, according to Freddie Mac. They've already begun coming down off those highs and it's now possible to get a mortgage rate under 7%. While refinance rates tend to be higher than rates for new loans, there are still opportunities to save by refinancing. 

"This fall is a good time to think about doing a refinance if you are locked in at the peak of the rate market," advised Sarah Alvarez, Vice President of Mortgage Banking at William Raveis Mortgage. "We see rates anywhere between 100-200 basis points off the peak, which can translate to significant savings. Just make sure you do the math and factor in how long it will take you to start realizing the savings once you take closing costs into consideration," she said.

The average closing costs on a mortgage refinance loan are approximately $5,000, according to MyHome by Freddie Mac. If you borrowed $450,000 in 2022 at 7.79% and can refinance to a new loan at 6.33%, you could save $492 monthly. The monthly savings you'd realize would pay off the $5,000 in closing costs in just over 10 months, so as long as you weren't planning to move before then, it would be worth going forward.  

For some borrowers, even the current refinance rates have already provided an opportunity to lower costs. "Rates dipped in early August and for many of our clients who got in homes when rates were around 8%, the drop was enough to make refinancing worthwhile," Fred Bolstad, Head of Retail Home Lending at U.S. Bank said. "If we do see a similar drop, there will be more borrowers who make the decision to refinance." 

See if a mortgage refinance makes sense for you now here.

You could get your refinance done more quickly

The anticipated rate cut in September could help to revive the faltering refinance market, which has seen fewer new loan originations in the current high-rate environment. However, some homeowners waiting to refinance likely won't come off the sidelines this fall because they anticipate rates will drop further.

"Mortgage rates are going to decline over the next year or more as the Fed reduces the Fed Funds rate for a period of time," according to Melissa Cohn, Regional Vice President at William Raveis Mortgage. "The right time to refinance will extend well beyond this fall." 

Still, waiting for rates to decline further may not pay off for everyone. If you can get a lower mortgage rate right now, each month you delay is another month you're paying more than you should. That adds up if you're sitting on the sidelines waiting for further rate cuts, especially as the Federal Reserve's next meeting post-September won't come until November. 

Banks may also be inundated with applications after repeated rate declines, which could add time and stress to the process. Taking action this fall, however, could allow you to beat the crowd. 

"You will benefit from a period where banks are not as slammed, Alvarez said. "When rates come down over the course of the next 12-24 months and volume increases, the amount of time a refinance will take will increase as purchases are often prioritized over refinance in the underwriting process." 

You could accomplish other financial goals 

For many homeowners, securing the absolute lowest rate isn't the ultimate goal of refinancing, so it may be better to act sooner rather than later. 

"Homeowners refinance for a variety of reasons, such as the need to borrow additional funds, consolidate debt, deal with the end of an adjustable rate resetting, and, of course, to obtain a lower rate," Cohn said. 

If you have pressing goals, those may justify taking action this fall rather than delaying further in hopes of a better future loan offer. 

"Consumer debt is at its highest levels of all time," according to Ralph DiBugnara, founder and President of Home Qualified. "This consists mostly of high interest rate credit card debt. With interest rates potentially coming down, this would be a great time to consolidate debt by refinancing. Credit card debt has averaged in the range of 20-25%, so a mortgage rate in the 6% range could offer huge savings depending on the size of the consumer debt."

The bottom line

Ultimately, borrowers must consider the big picture and their own financial goals when deciding whether to refinance this fall or wait. That's why Bolstad recommends connecting with a mortgage loan officer to explore your options and make the most informed choice. A loan officer can provide insight into the refinance terms currently available so borrowers can see just what a refinance could do for their financial lives.

Learn more about your mortgage refinance options online today.