You might not be thinking about refinancing your mortgage right now, but with a Federal Reserve rate cut on the table for some time this year, you could be looking for a lower rate sooner than you think​​ — especially if you recently got your loan.

Even so, when is the right time to pull the trigger? It depends on several factors, like how long you plan to stay in the home, the size of your mortgage and where you live, says Melissa Cohn, regional vice president at William Raveis Mortgage.

Let’s look at where mortgage rates could be headed and what you should consider when thinking about refinancing in 2024 and beyond.

Will mortgage rates go down this year?

Mortgage rates rose quickly in 2023, with the 30-year fixed rate average peaking just above 8 percent in October, according to Bankrate data. The 30-year average is closer to 7 percent now as the Fed continues its work to rein in inflation.

In 2024, the expectation is for the central bank to cut rates, but exactly when remains unclear. The Fed has shied away from lowering rates, including at its latest meeting in March, mainly due to hotter inflation and strong employment figures.

“My crystal ball is as cloudy as yours is,” says Satyan Merchant, senior vice president of Automotive and Mortgages at TransUnion. “I do think there’s general consensus that there will be rate cuts at some point this year.”

“Because the first rate cut has been so delayed, that means the last rate cut will also be greatly delayed and may not happen until some point in 2026,” says Cohn, who adds that mortgage rates could drop by 200 basis points over the next two years.

While a Fed cut would contribute to lower mortgage rates overall, fixed-rate mortgages — the most popular type of home loan — fluctuate with the 10-year Treasury yield. This figure is influenced by many forces, including Fed policy.

“We have to take into consideration that mortgage rates are generally pegged at about 1.75 percent above the 10-year Treasury,” says Cohn, “but due to volatility and rate hikes, they’re now trending at close to 3 percent over the 10-year Treasury.”

That wider spread translates to even higher mortgage rates — a factor that could affect how far rates fall when they do.

How much do rates need to drop before you refinance?

With mortgage refinance rates currently hovering around 7 percent, there’s just a small pool of homeowners refinancing now.

“It may take rates moving closer to 6 percent to spur a meaningful increase in refinances, as even borrowers with rates in the high 7 percent range could hold out for additional rate cuts forecasted for later in the year,” says Ron Haynie, senior vice president of Mortgage Finance Policy for Independent Community Bankers of America.

To be sure, refinancing activity recently gained steam when rates dipped under 7 percent, with applications up 12 percent the week ending March 8, according to the Mortgage Bankers Association.

“What we’ve learned is that it doesn’t take 100 or 200 basis points of rates to drop to spur refinance activity,” says Merchant.

The return of the 'serial refinancer'

Many borrowers in 2023 settled for a higher mortgage rate hoping to refinance in the future. If rates trend lower, some might look to refinance more than once. “A lot of homeowners with 7.5 percent to 8 percent mortgage rates now may become serial refinancers if mortgage rates continue to drop over an extended period of time,” says Greg McBride, CFA, Bankrate chief financial analyst. A refi-and-repeat strategy could work for you, but keep in mind: You’ll pay closing costs every time you refinance, and you can only do it after a “seasoning” period, typically at least six months from the time you closed the original loan.

In general, it’s better to refinance if you can take one-half to three-quarters of a percentage point off your current rate and plan to keep the mortgage long enough to realize savings after paying closing costs.

“If you can shave three-quarters of a percentage point off your rate, it pays to start doing the math,” says McBride. “At that level, your break-even period is probably in the neighborhood of three years.”

While that might not seem like a big difference, those interest savings add up over a 30-year loan. In addition, higher home prices today mean you could save more than you think.

“In the last cycle of declining interest rates, certainly there were those who were refinancing multiple times, but it was also when home values were materially lower than they are now,” says Merchant. “Theoretically, it takes even less of a reduction of interest rates to translate into dollars saved in a refinance payment.”

When will refinancing save you money?

Our mortgage refinance breakeven calculator can help you estimate exactly when you’ll recoup the costs of refinancing. Here’s an example assuming a borrower with a 30-year fixed-rate loan who decides to do a 30-year refinance after five years. This example also assumes $2,000 in closing costs.

Note: These monthly payments include loan principal and interest payments, not taxes, insurance or other fees.
Loan amount $303,280
Current mortgage rate 7.12%
Current payment $2,042
Rate after refinancing 6.62%
New payment $1,829
Breakeven point 10 months
Monthly savings $213

Is it ever OK to refinance to a higher rate?

The main objective of refinancing is to obtain a lower interest rate and save money.

That doesn’t mean you can’t refinance in times of higher interest rates, however. Some borrowers refinance due to personal circumstances such as divorce. Others view refinancing as a means to achieve other financial goals.

“Going from personal experience, my own son had a particular need to refinance, so he did,” says Haynie. “The rate he had before was about 4 percent and he now has [a mortgage rate] around 6.5 percent.”

In this case, refinancing allowed Haynie’s son to pull cash out of his home’s equity to pay for necessary costs and stretch the repayment out over a long loan term. This type of refinancing, called a cash-out refinance, costs more, but still often comes cheaper than other forms of financing like a credit card or home improvement loan.

Bottom line: Should you refinance in 2024?

You might want to consider refinancing your mortgage in 2024, especially if you got your mortgage in the last year and interest rates fall, or your specific circumstances call for a new loan.

“There’s so many more factors that you have to take into consideration other than just, ‘What’s the difference between my rate and what the new rate is?’” says Cohn.

Whether rates drop this year or next, here are resources to help you prepare: