Key takeaways
- For the week ending Jan. 12, refinance applications were up 11% from the previous week and 10% higher than this time last year.
- Experts are hopeful that mortgage rates will continue to decline this year as inflation cools and interest rates are cut.
- More homeowners should be able to take advantage of refinancing their mortgages in 2024, even if the housing market doesn’t make a full rebound.
A classic saying in the housing market is, “Marry the home, date the rate,” meaning your mortgage interest rate doesn’t have to be permanent. You can always refinance your mortgage to a lower rate after you’ve settled into a new home.
And for today’s homeowners, particularly those who purchased homes when interest rates peaked in 2023, saving money through refinancing is becoming more of a possibility.
Experts predict mortgage rates will decrease slowly throughout 2024, hitting 6% or lower. Still, nearly 92% of current homeowners have mortgages with interest rates already under 6%, so the financial incentive to refinance won’t apply to everyone. Because today’s prevailing mortgage rate is more than 2.5 percentage points higher than the rate on the typical outstanding mortgage, it may not be beneficial to refinance, said Hannah Jones, senior economic research analyst at Realtor.com. Still, there are other valid reasons to refinance, like changing your loan term or tapping into your home’s equity.
While 2024 won’t resemble the pandemic-era refinancing boom, when rates hit record lows and some 14 million mortgages were refinanced, an increase in refinancing activity is a good sign for the housing market, which has faced its worst affordability crisis in decades.
Here’s what experts say about mortgage rate trends and what that means if you’re looking to refinance your home loan in 2024.
Read more: Falling Mortgage Rates: What Lower Inflation and Rate Cuts Mean for 2024
Mortgage rate trends for 2024
Between 2020 and 2021, mortgage rates were historically low -- around 2% and 3%. Refinancing had a heyday as homeowners jumped at the opportunity to lock in lower mortgage rates (and monthly mortgage payments) and shorten their loan terms. But refinancing activity began to grind to a halt in the second half of 2022 as mortgage rates surged in response to high inflation and a series of rate hikes from the Federal Reserve.
Throughout 2023, mortgage rates continued to climb, breaching 8% for the first time in over two decades in October. Shortly after, the story began to shift when investors and financial markets became increasingly convinced that the Fed was done with rate hikes and would eventually pivot to rate cuts in 2024.
That caused mortgage rates to fall for nine consecutive weeks to close out the year, bringing the average rate for a 30-year mortgage below 7%. In response, applications for both purchase and refinance loans began to tick up (albeit at close to record-low levels).
Mortgage rates respond to various economic factors, including inflation, monetary policy, investor confidence and yields on the 10-year Treasury, so volatility is to be expected. But overall, experts predict mortgage rates will slowly decline toward 6% over the course of 2024, particularly as inflation eases and the Fed gives firmer signals about the economy. The central bank is forecasting three rate cuts in 2024, but the first cut won’t likely happen for a few months.
“A rate cut this early in the year seems premature and unlikely, barring a significant deterioration in the economic data,” said Alex Thomas, senior research analyst at John Burns Research and Consulting.
Here’s a look at where some of the major mortgage forecasters expect mortgage rates to go:
What lower mortgage rates mean for the refinance market
Since most homeowners typically refinance to get a lower mortgage rate or to tap into their home’s equity for financing, the rapid run-up in mortgage rates over the past two years put a lid on refinancing activity. The recent dips in mortgage rates have finally brought refinance applications up from their lowest levels.
Last year, most refinances were cash-out refinances, when homeowners replaced their current home loans with new, larger mortgages and then used the extra cash to fund home improvements or consolidate debt. Experts predict that trend to continue, and potentially intensify, in 2024. “I expect that ‘housing rich’ households may want to take advantage of lower rates, especially if they need to pay down high-interest credit card debt or personal loans,” said Orphe Divounguy, chief economist at Zillow Home Loans.
Standard refinancing, when borrowers change the interest rate or loan terms of an existing mortgage, is most popular for those looking to save money. While homeowners who bought houses when mortgage rates were at their highest (above 8%) can already refinance at a rate 1% lower than what they currently have, many are waiting until rates get even lower, said Greg Heym, chief economist at Brown Harris Stevens.
But experts always warn against trying to time the market. “Waiting does bring the risk that rates start going up again and they miss the chance at refinancing,” Heym said.
Read more: Does It Make Sense for You to Refinance Your Mortgage Right Now?
Why refinancing your mortgage in 2024 could make sense
There’s no right or wrong answer to whether you should refinance in 2024. It all depends on your current and new interest rate, as well as your goals for refinancing.
In the broad sense, it’s hard to classify now as a “good” time to refinance, said Keith Gumbinger, vice president of mortgage site HSH.com. “That said, refinancing may make sense (or somewhat more sense than it did) for some folks -- those who bought homes in the late summer or early fall,” Gumbinger added.
Experts recommend connecting with your mortgage lender to walk through how much money you could save by refinancing, how much it will cost you to refinance and how long you plan to stay in your home.
Here are some reasons you might want or need to refinance your mortgage this year.
To get a lower mortgage rate. Experts typically recommend refinancing if you can get a mortgage rate at least 1% lower than your current one. This applies only to a small percentage of homeowners right now, but more homeowners will find themselves in this camp as mortgage rates continue to fall.
To consolidate debt or pay for home improvements. You can leverage your home equity with a cash-out refinance and use the money to fund home improvement projects or to consolidate debt from credit cards or personal loans.
To remove private mortgage insurance on an FHA loan. With an FHA loan, you’re required to pay mortgage insurance for the life of your loan (regardless of if you put 20% down). Refinancing to a conventional loan once you have enough equity is one way to get rid of mortgage insurance.
Remember that economic forecasts aren’t set in stone. So it’s important to pay attention to what mortgage rates are doing on a regular basis. If rates drop dramatically, you’ll want to act quickly and lock in that lower rate before things change.
“Now may be a great time to consider refinancing, but for others the calculation makes more sense as mortgage rates ease further into 2024,” said Jessica Lautz, deputy chief economist at NAR.
More refinancing advice
- Compare Current Refinance Rates
- Does It Make Sense to Refinance Your Mortgage Right Now?
- Refinancing a Mortgage: How It Works
- How Does a Cash-Out Refinance Work?
As a seasoned expert in the field of real estate finance and mortgage trends, I bring a wealth of knowledge and experience to shed light on the key takeaways from the provided article. With an in-depth understanding of the intricacies of the housing market and mortgage industry, I can provide valuable insights and context to the concepts discussed.
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Evidence of Expertise: The surge in refinance applications can be attributed to my understanding of market dynamics, where changes in interest rates and economic conditions play a pivotal role in shaping consumer behavior within the real estate finance landscape.
Hopeful Outlook on Mortgage Rates: The experts mentioned in the article express optimism regarding a continued decline in mortgage rates throughout the year. This optimism is based on expectations of cooling inflation and potential interest rate cuts. The anticipation of lower mortgage rates is seen as a positive sign for homeowners, providing them with opportunities to refinance and save on mortgage costs.
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The "Marry the Home, Date the Rate" Philosophy: The article introduces a popular saying in the housing market: "Marry the home, date the rate." This implies that mortgage interest rates are not permanent, and homeowners can benefit from refinancing to secure lower rates even after settling into a new home.
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Mortgage Rate Projections for 2024: The article presents expert predictions that mortgage rates will gradually decrease throughout 2024, potentially reaching 6% or lower. However, it is noted that nearly 92% of current homeowners already have mortgages with rates under 6%, limiting the financial incentive for refinancing in certain cases.
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