The Federal Reserve cut interest rates by half a percentage point, or 50 basis points, on Wednesday for the first time since March 2020.
Even before the Fed cut rates, some homeowners had already taken advantage of the recent declines in mortgage rates. Refinancing activity rose to 46.7% of total applications in the week ended September 6, up from 46.4% the previous week. according to to the Association of Mortgage Bankers.
Others were waiting for Fed action. At that point, 18% of consumers said that scheduled to be refinanced a loan once interest rates drop, according to a NerdWallet report. The financial services website polled more than 2,000 US adults in July.
But it may be too early to take advantage of refinancing a mortgage.
“You want to wait for interest rates to be at a place where you’re happy to hold that rate for a period of time,” said Melissa Cohn, regional vice president of William Raveis Mortgage in New York.
Plus, experts say applying for a refi doesn’t mean you’ll get approved. Your lender may say no.
“No matter what the Fed does, no matter what happens in the broader economy, remember that you have a role to play in all of this,” said Jacob Channel, senior economist at LendingTree.
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Factors that could limit your ability to refinance
1. Your financial situation has changed
Make sure your finances are in order. Otherwise, your lender may not approve your mortgage refinance, experts say.
Applying for refinancing is similar to applying for a mortgage. A change in your financial situation, such as a layoff or lower income or higher debt, may mean you don’t qualify.
“Your mortgage rate and whether or not you get approved for a loan or refinance … is up to you,” Channel said.
Consider all the “variables that got you approved in the first place,” Cohn said, such as your credit score, income and how much debt you’ve taken on recently. A change in these variables could affect your ability to be approved.
2. You have not received your loan for a long time
How soon you can refinance your mortgage will depend on the term of your loan and the lender’s requirements.
You can refinance within days of closing with some types of loans, while others may require a year’s worth of payments. according to on LendingTree.
3. You recently refinanced
Technically, there are no hard limits on how many times you can refinance your mortgage, Channel said.
However, some lenders will have waiting periods, he said. In these scenarios, if you refinance today, you may not be able to do so again in December if interest rates go down after the Fed’s last meeting of the year.
“While there’s probably no hard limit on how many times you can refinance, you probably don’t really want to do it that often,” he said.
You pay closing costs every time you refinance, “so you don’t want to spend money unwisely,” Cohn said.
It may be in your best interest to consider a mortgage refinance only every few years if your financial situation has changed or if interest rates drop “really dramatically,” Channel explained.
“Otherwise, you’re putting yourself in a situation where you spent so much money on the refinance that your monthly savings don’t really add up,” he said.
“It might be worth talking about a mortgage modification”
In some cases, a mortgage modificationor changes to your original mortgage to make your payments more manageable may be an option.
“If you’re really, really struggling and say something catastrophic happened in your life … instead of refinancing, it might be worth talking about a mortgage modification with your lender,” Channel said.
It is certain that the broader housing market is not in danger of collapsing and most homeowners “are not on the verge of foreclosure,” he said.
But if you’re struggling financially, your lender may be willing to modify the terms of your mortgage, Channel said. Contact your lender and see if you qualify.
Remember that whether a mortgage refinance makes sense will depend on factors like your income, how long you expect to stay in your home and your closing costs, Cohn said.
“There is no rule of thumb that applies to everyone in the country,” he said.
Talk to your lender or broker or see a financial advisor to determine what might work best for you, Channel said.
“They’ll be able to guide you through the specifics of your situation,” he said.
