Why 46% of Recent Mortgage Borrowers Should Think About a Refinance This Year

Mortgage rates have held steady in the mid-6% range for the last few months, but should rates go lower, a lot of recent homeowners stand to benefit.

In fact, according to the latest Mortgage Monitor report from ICE, 46% of 2023 mortgage borrowers could reduce their rate by at least 0.75% if rates fall to 6% — something Fannie Mae predicts will happen by the end of this year. Nearly a third of 2023 borrowers could reduce their rate by a full percentage point.

A good swath of 2022 borrowers could also save by refinancing if rates drop to 6%.

Did you get your mortgage loan in the last couple of years? Here’s why you might want to start gearing up to refinance — and how to do it.

Who should think about refinancing this year?

Mortgage rates have dipped quite a bit since their almost 8% peak last year, averaging 6.64% as of last week, according to Freddie Mac. For borrowers who took out their mortgages during that peak period, that means serious savings already.

On a $400,000 loan, an 8% rate would equate to a monthly payment of $2,935. If you could that rate to 6.6%, your payment would fall to just $2,554.

If rates fall even further — which most industry experts predict for this year — the pool of potential refinancers grows even more. Currently, Fannie Mae projects an average 5.8% rate on 30-year loans at the end of 2024. The Mortgage Bankers Association forecasts a slightly higher 6.1% average.

Either way, borrowers from the last few years stand to save. If rates reach 6%, nearly 4 million could take 75 points or more off their rate — more than double the rate of potential refinancers today. While most of those are borrowers whose loans originated in 2022 and 2023, there are some outliers. For the bulk of borrowers outside of 2022 and 2023, though, ICE says it would take rates falling under 5% to make a “meaningful” difference.

How to prepare for a refinance

If you’re one of the millions of homeowners who took out your mortgage loan in the last few years, there’s a good chance you could save by refinancing this year.

While the timing may not be right just now, make sure you’re watching rates and working with a loan officer. They can alert you when rates are at a point that can benefit your pocketbook.

You should also start preparing for your application ahead of time so that when rates do get to a more impactful point, you can pull the trigger quickly. First, keep your spending in check, pay your bills on time, and avoid opening any new credit cards or accounts. This will safeguard your credit score as you move toward refinancing.

Make sure your income remains consistent, and start preparing for closing costs, too. Though you can often roll these costs into your loan amount, that will only increase your long-term interest costs, so if you can pay them out of pocket, that’s typically best.

Finally, start vetting lenders. When you refinance, you don’t have to use the same lender you got your initial mortgage from. Feel free to compare loan offerings and quotes from several companies to ensure you get the best deal.