When Should I Refinance my Mortgage? Is 2024 or Now a Good Time?

On the heels of the highest mortgage rates in years, late 2023 saw the largest interest rates drop since the financial crisis. The REFINANCES are coming and with mortgage interest costs expected to tumble in 2024, the big question is… when should I refinance my mortgage and is now a good time?

In this article I wanted to share how to not miss that chance to say goodbye to higher monthly payments, lower your interest costs and how to have perfect timing to lock in a low fixed rate loan. Simply put, I’ll show you how to know exactly when to refinance your mortgage and not miss the boat in 2024.

A crazy Picture of Mortgage Interest Rates.

Image Courtesy MBS Highway

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 interest costs this low, people were rushing to apply for a home loan and bought that new home not knowing that this new loan (and rate) they just got would never been seen again.

For the rest that didn’t get a fixed rate loan in the 2s, trying to finance a home is a stretch on the monthly budget. The good news is that very soon you will have many options with many lenders to refinance your current loan. No need to keep dipping into that emergency fund.

And for those that have and FHA loan or a VA Loan, don’t worry… you don’t need equity in your home to improve your current loan. And VA allows a ‘cash out refinance’ up to 100% of the home value.

Grabbing a Lower Interest Rate

When should I refinance my mortgage?

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 in 2024.

I predict that when the rates go down in 2024, it’s going to be like trying to find toilet paper during Covid. 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 in advance. 

I don’t care if you are sitting on 4.25% or something lower, I highly recommend that all homeowners plan ahead 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. And 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, how will I know when should I refinance my mortgage?

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; the typical consumer has no clue what it means to them. 

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

For those reasons and many more, most homeowner cling to their good ‘ol conventional loan with higher rates than they have to for longer than they have to.  They never ask themselves ‘when should I refinance my mortgage’? Worse yet, they miss the chance to refinance all together.

Slow and steady. The Mini-Refinance.

When planning a future 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 ‘mini refinances’.

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.  

And it’s not expensive.

The old school way of thinking that you have to reduce your interest rate by 2% because a mortgage refinance is so expensive, well that’s all false. As part of the planning, up front, it’s important to do a full analysis.

Start with where you are to where you should be and will this save money. Next, what are the closing costs, what is the break-even point and will this put you in a better financial position than staying with your existing loan. More on this later.

When should I refinance my mortgage then… should I do it if there are any costs? To refinance a mortgage doesn’t have to be expensive if structured correctly. I like a mortgage refinance with no money needed up-front (even if you have to finance it into the loan) and to keep the break-even point under 18 months. Preferably, I shoot for a 12 month or less break-even.

A break even is the cost of the new loan divided by the monthly savings calculated in months.

When should I refinance my mortgage and pay closing costs?

I get this question a lot.  I like the idea of minimizing costs and doing the ‘mini refinance’, but what about paying points and just buying the rate way down?  

This is only a good idea if you are at the ending stage of the interest rate drops. If this is the case, go for it.  Pay closing costs now, finance it if you have to and just smile all the way to the bank with your low rate and lower monthly payment.

ALSO, if you are near the bottom AND if you plan to be in the home at least 6 to 8 or more years, paying costs to get a lower annual percentage rate isn’t a bad idea. Paying points and closing costs can be expensive so you have to make sure it aligns with your tenure in the home.

Obviously don’t refinance to get the lowest interest rate if you know you are going to be bugging out in 3 years. Special exceptions when considering a cash out refinance.

Special Note for Active-Duty Military & VA IRRRL Loans

It’s really never a good idea to pay closing costs when doing a VA IRRRL aka Streamline Refinance.  Based on your MOS you’ll probably only be at your new duty station 3 maybe 4 years. But, if you plan to keep the current mortgage and use the home as a rental property, maybe it’s OK.

The VA does require a 36-month break-even point as one of their criteria, but that still doesn’t mean you should pay points and closing costs.  Make sure your loan officer does a FULL break-even point analysis.

Never get a ‘weird rate’. 

I did a video on this about how choosing a ‘weird rate’ can hurt you for further refinance opportunities. p.s. This does not apply to a conventional mortgage.

This VA Rate will hurt you!

PROBLEM: Your Lender isn’t watching out for you!

It’s highly unlikely that your lender is actively watching to refinance your existing mortgage. This may cause you to miss the best time to get a new mortgage and unfortunately, most, and I mean the vast majority of, loan officers don’t manage their past client database.

These LOs end up missing countless opportunities to help their clients get a new loan and save thousands over the life of the loan. Sadly, most home loan lenders pound into the heads (and compensation packages) of their loan officers that a purchase home loan is better to originate than a refinance mortgage loan. They say that this is the only way to build a sustainable business. 

Last I heard, a borrowers refinance still makes money, and I can tell you as one of the top loan officers in the country, it’s not just purchases that pay the bills. But let’s not get stuck on that point. Let me give you a real-life example and you’ll see how ludicrous it is.

Great Production, Horrible Client Management

In early 2021 I attended an awards ceremony for my previous company.

I was newly recruited and was invited to take part in the festivities. A very kind gesture. I sat in the front row as the top producers in the company lined up. The razzle and dazzle, the lights and the atmosphere, the music, it was quite a show.

One after another great producing loan officers climbed to the stage, waiving in acknowledgement for their efforts and then proudly shook the hand of the President and the CEO as they accepted their trophies. What I saw was some great production but also a complete disregard for the clients they had served in years past.

No Refinances in a Refinance BOOM!

The previous year was arguably the biggest refinance boom in history. As Loan Officers touted across the stage with thousands of loans funded, I saw the problem. There were no refinances being done. 

I remember one dude funding 100mm dollars with 96mm of it being ‘purchase’. Loan Officer after Loan Officer it was the same story. 90+% of their business in 2020 was ‘purchase’! 

I remind you that this was the BIGGEST refinance boom of the century, and these guys aren’t doing any refinances!? Why are they not serving their existing database?!

Pardon the expression, but I remember saying ‘someone should be shot for this’. I was kidding of course, but I wondered how such a complete disregard for the financial situation of the existing client base was so rampant amongst my peers?! A new loan is a new loan, right?

Which Mortgage Lender did the mortgage refinancing?

Their clients certainly did refinance, and they asked someone else ‘when should I refinance my mortgage’. And, you know who got all the mortgage refinancing? The refinance-only sweat shops that spent millions on direct mail, online advertising and subsequently offered loan terms that were worse than what they could have gotten from their current Loan Officer.

Servicers that held the mortgage also cashed in. Too many loan officers heard the dreaded “Sorry man, my servicer called me to refinance my mortgage”. They mostly didn’t even get a great deal, ending up getting charged a hidden origination fee that would make a grown man cry.

The Moral of the Story

My real-life story is all too common in my profession. And I guess the moral of the story is that if you are looking to refinance your mortgage when there are lower interest rates, just know that your lender is probably not watching out for you.

Your loan officer was probably a really nice guy or gal, but they probably don’t have the staff, the system, the organization or even the time to proactively identify and follow up on refinancing your mortgage. (No offense to my fellow loan officers… you know it’s true.)

You’re probably on your own.

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 November 2023 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.

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.

‘When should I refinance my mortgage’ should be answered by the trusted loan officer. I’m here to help and I hope you will keep reading to perhaps improve on how you service your existing customer base. Help your clients get a lower interest rate and a new monthly payment with a better loan term than anything they got in 2023.

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

First off, let’s not worry about where the rates are now. Let’s not stress about your credit score or your home equity. We are looking to find the point that we need to get to and prepare for it.

Provide your loan officer approximately 12 pieces of information for analysis. They will know the questions to ask. Be sure and consider things like a cash out refinance or a plan to drop private mortgage insurance.

Secondly, there should be a strategy call where you are presented, based on your current mortgage, what interest rate you need to get to (and with what closing costs) in order to achieve your desired monthly savings and optimal terms.

Special consideration will be given to the home equity position and loan term.

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 rates hit your number you get notified by email with specific instructions. 

After you receive your rate alert, you would 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 to 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, save money by consistently improving your monthly payments over time with ‘mini refinances.’

To see this in action, click HERE and take 2 minutes to get the ball rolling. This is not an application, there is no credit report fee, no refinance closing costs either. Quite frankly, I don’t even care about your credit score. This is the planning stage.  

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.

In Conclusion… I’m just going to freestyle here for a moment.

Mortgage rates are a moving target. Don’t freak out that you missed 2021 and your interest payments are killing you. Focus on the next wave of low rates. Improve your credit score, and program in your perfect fixed rate mortgage.

Don’t wait for the news, find a professional.

With all 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 payoff 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).

Final words, I promise!

When you are considering refinancing your mortgage, please start your planning ahead of time. Make sure you are hooked up with a professional. There are so many options to consider. A cash out refinance might be optimal if you have some home equity and need to pay off debt. An adjustable rate mortgage is NOT a good option right as rates are higher than with a fixed interest rate. Also, use the equity in your home to consolidate debt.

If you don’t have a trusted resource, I and the team are able to serve clients in all 50 states so I would love to help you refinance your mortgage! Visit me over at www.rate.com/rickelmendorf.

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