The Ultimate Guide to Refinancing. When Should I Refinance my Mortgage?

As we step into 2025, there’s a noticeable shift in mortgage interest rates, with a significant decrease that hasn’t been seen since the financial crisis. This trend poses an important question for homeowners: Is now the right time to refinance your mortgage?

Refinancing can seem complex, but you don’t need to be a financial guru to understand when to make your move. This guide will help you prepare for a refinance and identify the best time to take action, ensuring you capitalize on the dropping rates.

Ready to find out when to refinance your mortgage without missing out on potential savings? Let’s get started.

A Crazy Picture of Mortgage Interest Rates

On January 7, 2021, the interest rate on a 30-year fixed-rate mortgage was the lowest in history. The average fixed mortgage clocked in at only 2.65%.

With historically low interest rates, many homeowners rushed to secure loans for new homes, locking in rates they likely won’t see again. Monthly mortgage payments might feel like a stretch for those who missed out on fixed-rate loans in the 2s.

But there’s good news on the horizon. Various refinancing options are soon becoming available from multiple lenders, helping you avoid tapping into your emergency funds.

If you’re holding an FHA or VA loan, take heart. You don’t need home equity to enhance your loan terms. Plus, VA loans offer the option of a cash-out refinance for up to 100% of your home’s value.

Grabbing a Lower Interest Rate

Low rates will be here before you know it and perhaps thousands of homeowners will miss out on saving a lot of money.  They may eventually refinance, but could the timing have been better?  The question of ‘when should I refinance my mortgage’ will become extremely important.

I predict that when the rates really go down in 2025, it will be like trying to find toilet paper during COVID-19. Remember that? 

Markets move fast and with extreme volatility, so timing is everything. But the question is, how do you know when it’s time for YOU to refinance? In other words, when is it truly a good time to refinance a mortgage?

Here is the strategy I use to slowly and consistently improve a homeowner’s financial position, time the market, and never miss an interest rate drop.

Planning a Mortgage Refinance in Advance

The biggest recommendation I have is to plan. I don’t care if you are sitting on 4.25% or something lower, I highly recommend that all homeowners plan for their ‘ideal refinance scenario’.

This strategy works for cash out refinances, FHA loans, VA loans, conventional loans, or just a simple rate and term refinance. The technology exists where you can put a pre-agreed upon scenario into a pricing engine and the second that rates hit with the desired terms, you get notified.

I mean like immediately when it happens, no guesswork. Everyone that doesn’t do this could very easily miss the boat. I hate to sound so simplistic, but without some help, you can never know the right time to refinance.

The Media Won’t Help

For starters, the media is typically 1 to 2 weeks behind any relevant rate activity because they wait for the corroborating reports. 

Additionally, services that are available to the public talk about loans in such generalities that the typical consumer has no clue what it means to them. Don’t wait for the Fed Rate Cuts to refinance, you will already be too late.

If you want to see what really happens to mortgage rates after a Fed Rate Cut, check out my article: What a Fed Rate Cut Means for Mortgage Rates.

Even news like ‘biggest rate drops in weeks’ or ‘surge in mortgage applications’ is apparent nonsense to most homeowners. Seriously, who has time to keep up with stuff like that?

For these reasons and more, many homeowners hold onto their conventional loans with higher rates longer than necessary. Often, they don’t stop to ask, “When should I refinance my mortgage?” Worse still, they miss the opportunity to refinance altogether.

Slow and Steady, The Mini-Refinance

When planning a refinance, I’ve found that it’s almost impossible to catch rates at their lowest point. However, smart homeowners are cashing in their chips little by little, consistently improving their interest rate and monthly mortgage payment over time with what I like to call a ‘mini refinance’.

This is a low-cost (or even no-cost) mortgage refinance that provides immediate savings to your monthly mortgage payment, and it’s designed to lower your interest rate and monthly payment in a way that won’t hurt you financially.  

It’s Not Expensive

The outdated belief that refinancing your mortgage isn’t worth it unless you reduce your interest rate by 2% due to high costs is simply not true. Proper planning involves a thorough analysis upfront. Begin by evaluating your current position versus where you could be and whether the savings justify the switch.

Consider the closing costs, calculate the break-even point, and assess if the new loan puts you in a better financial position than your existing one. So, when is the right time to refinance your mortgage, especially if costs are involved? Refinancing doesn’t have to be costly if it’s planned correctly.

I advocate for refinancing strategies that require no upfront money (even if costs are rolled into the loan) and aim for a break-even point within b months, ideally even less, targeting 12 months.

To clarify, the break-even point is calculated by dividing the total cost of the new loan by the monthly savings, expressed in months.

When Should I Refinance My Mortgage and Pay Closing Costs?

I often hear queries about minimizing refinance costs, and the appeal of a ‘mini refinance.’ But what about paying points to lower your interest rate substantially?

This tactic is most beneficial if you catch the tail end of dropping rates. If that’s where we are, paying closing costs upfront, even financing them if necessary, can be wise as it locks in a low rate and reduces your monthly payments.

Moreover, if rates are nearing their lowest point and you plan to stay in your home for at least 6 to 8 years, investing in a lower annual percentage rate by paying points and closing costs could work in your favor. However, this approach does require a significant upfront investment, so it’s crucial to ensure it matches your expected length of stay in the home.

It’s generally unwise to refinance for the lowest interest rate if you anticipate moving within 3 years unless you’re considering a cash-out refinance, which may have its strategic benefits.

Special Note for Active-Duty Military & VA IRRRL Loans

It’s generally not wise to pay closing costs when opting for a VA IRRRL, also known as a Streamline Refinance, especially considering your likely duty station tenure of just 3 to 4 years. However, if you’re considering retaining your mortgage to turn your home into a rental property, then it might be justifiable.

The VA stipulates a 36-month break-even period as part of their refinancing criteria, yet this doesn’t automatically mean paying points and closing costs is beneficial. Your loan officer must conduct a comprehensive analysis to determine the actual break-even point, ensuring the refinancing costs align with your long-term financial strategy.

For more details on VA IRRRL loans, watch my guidance video:

PROBLEM: Your Lender isn’t Watching Out for You

It’s a common misconception that your lender thoroughly tracks when to refinance your mortgage. In reality, many loan officers do not actively manage their past client databases, leading to missed opportunities for refinancing that could save homeowners thousands over the life of their loan.

Unfortunately, many mortgage lenders focus their training and incentives on originating purchase loans rather than refinances, believing this is the only path to building a sustainable business.

However, as one of the top loan officers in the nation, I can attest that refinances are also profitable and play a crucial role in maintaining a healthy business.

Focusing solely on purchasing loans overlooks the significant benefits refinancing can provide both the borrower and the lender. To illustrate the absurdity of overlooking refinance opportunities, let me share a real-life example:

Great Production, Horrible Client Management

During an awards ceremony at my previous company in early 2021, I experienced firsthand the glitz and glamor that often accompanies such events. As a newcomer, I was seated in the front row, witnessing the company’s top producers being honored. It was an evening filled with stunning lights, lively music, and intense excitement.

As each successful loan officer ascended the stage, they were greeted with applause, accepting trophies from the President and CEO with pride. However, among this celebration of high production, I couldn’t help but notice an underlying issue. There seemed to be a complete disregard for these loan officers’ past clients.

This observation highlighted a gap in ongoing client relationships, suggesting that once the initial transaction was completed, the continued needs and potential refinancing opportunities of these clients were overlooked.

No Refinances in a Refinance BOOM!

At the awards ceremony, I noticed a glaring issue as I watched loan officers parade across the stage, celebrating their accomplishments. Despite the previous year being the biggest refinance boom in history, refinances were notably absent from their achievements.

Surprisingly, one individual had funded $100 million, of which $96 million was from purchases alone. This pattern repeated itself with nearly every loan officer, with over 90% of their business in 2020 coming from purchase loans.

This raised a critical question. During the largest refinance boom of the century, why were these professionals not tapping into their existing client databases for refinances?

The oversight seemed almost negligent, given the potential benefits for clients. The financial landscape was ripe for refinancing, yet many loan officers missed the opportunity to serve their past clients effectively.

I remember feeling so amazed by this oversight that I teasingly said, “Someone should be shot for this.” Of course, I wasn’t serious, but it highlighted my disbelief at how extensive the disregard for clients’ ongoing financial needs was among my peers.

After all, whether it’s a new loan or a refinance, the objective should be the same: to secure the best possible financial outcome for the client.

Which Mortgage Lender did the Mortgage Refinancing?

Many clients ended up refinancing their mortgages, but they went to other companies to do it. As a result, companies that focus mainly on refinancing, which often advertise heavily online and through mail, got most of this business. Unfortunately, these companies sometimes offered worse loan terms than what the original loan officers could have provided.

Loan servicers also took advantage of the situation. They reached out to homeowners directly, convincing many to refinance through them. Sadly, many of these homeowners ended up with deals that weren’t as good as they could have been, including some with hidden fees that were surprisingly high.

This shows a big missed opportunity for loan officers to reconnect with their clients and offer them a better deal on refinancing.

The Moral of the Story

This real-life example is a frequent incidence in the mortgage industry. The takeaway here is key. If you’re considering refinancing your mortgage for lower rates, don’t expect your lender to remind you or reach out.

While your loan officer may be excellent, they likely lack the resources, systems, or time to manage your refinancing needs proactively. This isn’t a slight against my colleagues, it’s just the reality of our business.

For most homeowners, you’re on your own. Mortgage management is personal finance 101 and as I get into my solution, I can promise you, you won’t have to hold on to that higher monthly payment for too much longer. Lower monthly payments are in your immediate future.

The Solution to Lowering Your Monthly Payment

It’s called auto-pricing technology.  This is what will answer the question ‘when should I refinance my mortgage!’

A recent statistic from the Origination Market Monitor revealed that 64% of loan companies have the exact technology I’m about to reveal to you.  This means that 64% of loan officers have the technology to ensure you never miss a great opportunity to refinance and lower your monthly payment.

But they don’t use it.

Getting a lower interest rate is not rocket science. The easiest mortgage refinancing option is only a few clicks away and a phone call.

A Note to My Loan Officer Friends

Let it be said that I’ve not come to steal, kill, or destroy existing loan officer relationships.

The trusted loan officers should answer people about when to refinance. I’m here to help and I hope you will keep reading to perhaps improve on how you service your existing customer base.

Here’s the Plan Stan. We Plan Your New Mortgage

Firstly, let’s focus on preparing rather than worrying about current rates, your credit score, or how much equity you have in your home. Start by giving your loan officer about a dozen key pieces of information.

They’ll guide you on what they need. This will help evaluate options like cash-out refinancing or dropping your private mortgage insurance.

Next, you should have a strategy discussion. During this call, your loan officer will outline a plan based on your existing mortgage details. They’ll explain what interest rate you need to target and what closing costs will look like to reach your desired monthly savings and secure the best loan terms.

Attention will also be paid to your home equity and the new loan term, ensuring the refinancing strategy aligns with your financial goals.

This is Where it Gets Cool

All the data is then plugged into a tool called Optimal Blue. The loan officer will set an alert into the pricing engine that works 24 hours a day. Yeah, it’s like a digital Loan Officer that never sleeps! Its whole job is to lower your monthly mortgage payments.

The computer continually references your desired outcome and compares that 24/7 with current rates and market conditions. Every time pricing updates, your alert is re-evaluated. The SECOND interest rate hits your number you get notified by email with specific instructions. 

After you receive your rate alert, you will use a digital mortgage application to apply. Lock in the rate and close in just 2 to 4 weeks. If rates fall again during the refinance process, there is an internal rate-drop option to secure the lower rate before closing.

To ensure you are getting things exactly as expected, after receiving the application I recommend a quick strategy session before going any further. 

You want to make sure we caught the market right and perhaps don’t need to wait out interest rates a little more. Many times, I’ve wanted to reprogram the machine depending on a personal situation or perhaps change up the loan term.

Please Don’t be Late for the Party!

This happened all throughout 2020 and 2021.  Sometimes it’s due to not knowing when to act, but other times it’s due to procrastination and greed. “When should I refinance my mortgage? Hah, not now… I’ll wait till they are lower!“

Here’s Some Free Advice.

As I mentioned earlier, it’s almost impossible to catch rates at their lowest point.  I encourage you to cash in your chips little by little, and save money by consistently improving your monthly payments over time with ‘mini refinances.’

To see this in action, take 2 minutes to get the ball rolling. There is no application, no credit report fee, no credit pull, and quite frankly, I don’t even care about your credit score. This is the planning stage.  

Click Here to Plan a refinance

If you have a loan officer (or you are one) and want this set up, please let me know and I’ll be happy to schedule a call. Here is my calendar link if you want to skip the form and just talk to me directly.

Don’t Wait for the News, Find a Professional.

With all the news starting to pour in, I’d be thinking… when should I refinance my mortgage too! So many things I couldn’t even begin to fit into this article but let me try to sum it up by saying that you should annually have a look under the mortgage hood.

Maybe there are opportunities to get a higher credit score or pay off high-interest debt. Do this with a cash out refinance or a personal loan. Paying high interest rates on credit cards is brutal and there are ways around it. Using your home equity to consolidate debts can improve your credit score as well.

A good loan officer will look at the blended rate of all your debts. Using the home’s equity to pay off the debt is many times better than carrying debt. Mortgage payments on perhaps not a lower interest rate than you have on the current loan still may be better than paying installment debt, credit card interest, etc. You get it right?

Dropping your mortgage insurance is another way to save money. And you DON’T need to refinance to drop it. If you feel you have 20% of equity, you don’t have to pay mortgage insurance. (Unless you have an older FHA loan).