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Interest Rate Cuts Are Here. Should You Rush to Refinance Your Mortgage?
September 25, 2024 | Posted by: Angela Robinson
If you’re one of the homeowners who locked in a mortgage before 2020 or refinanced during the record-low rates of 2020-2021, you’re probably enjoying a great interest rate. But for those who bought homes more recently, the story has been quite different. Since 2022, mortgage rates have risen sharply, making homeownership less affordable for buyers in 2023 and 2024.
If you’ve been feeling the pinch of high interest rates, the good news is that relief could be on the horizon. The Federal Reserve has begun lowering interest rates after a series of aggressive hikes aimed at controlling inflation. This could open up opportunities to refinance to a lower rate soon—but should you act right away or wait for a better deal?
Why Waiting Could Be a Smarter Move
Refinancing a mortgage isn’t something you want to do too often, especially since it comes with significant costs. Closing fees for refinancing typically range from 2% to 5% of your loan balance. For example, if you owe $200,000 on your home, refinancing could cost you anywhere from $4,000 to $10,000. That’s why it’s important to time your refinance carefully.
The Bank of Canada is starting to cut rates. However, this is only the beginning of a series of cuts the central bank has planned. By holding off until 2025, after several more rate reductions, you could secure an even lower interest rate, making the cost of refinancing more worthwhile.
How to Prepare Now for a Better Refinance Deal Later
While waiting for rates to drop further, there’s still plenty you can do to set yourself up for a successful refinance. One of the most effective ways to qualify for the lowest possible rate is by improving your credit score. The higher your score, the better the interest rate you’re likely to get.
To boost your credit score:
- Pay all your bills on time.
- Reduce your credit card balances as much as possible.
- Check your credit report for errors. Mistakes on your credit report can portray you as a less reliable borrower, which could hurt your chances of getting a favorable refinance rate. Correcting these errors now could save you money later.
The Bottom Line
While the thought of refinancing to a lower rate may be tempting right now, waiting until 2025 could save you thousands of dollars in the long run. With more rate cuts likely on the way, homeowners who are patient will likely find themselves in a much better position to refinance at significantly lower rates. In the meantime, work on improving your credit score so you’re ready to lock in the best deal when the time comes.
