Mortgage Rates May Be Falling, but You'll Regret Refinancing Now

Shopping for a home has been rough the last few years. Inventory plummeted during the COVID-19 pandemic and home prices skyrocketed. Then, inflation drove up mortgage rates, forcing would-be borrowers to either pay more in interest or wait for rates to come back down.

Things have finally started to turn around on that last issue, with the Federal Reserve initiating its first rate cut in four years on Sept. 18. Mortgage rates were already trending lower, and fell more in the wake of this rate cut. Some people who have bought homes in the last few years consider this a sign that it's time to refinance, but I wouldn't do that just yet if you want better mortgage rates.

We're just beginning a rate-cutting cycle

The Federal Reserve's September rate cut is expected to be the first of many. No one can predict the future, but many experts expect at least two more rate cuts this year -- one on Nov. 7 and another on Dec. 18. Those mark the Fed's last two meetings in 2024.

Experts are also predicting four more cuts throughout 2025. It's unclear exactly when these will occur. But it's likely that interest rates across all types of banking products will continue to fall throughout 2025.

This means you can probably secure a lower mortgage interest rate if you wait to refinance until at least mid-2025. By then, we'll probably have several more rate cuts priced in and banks will likely be offering much better rates than they are today.

The choice of when to refinance is ultimately up to you. However, refinancing is generally something you only want to do once because you have to pay closing costs each time.

What to do in the meantime

While you're waiting for rates to come down further, there are a few ways to increase your future savings. First, continue to pay your current mortgage payments on time. You don't have to pay more than what's due, though you can if you want to. The key here is just to keep your account in good standing and your credit score high. 

High credit scores qualify you for lower mortgage rates. You can also take other steps to boost your credit score if you're not happy with it. These include:

• Making on-time payments across all your bills
• Paying down credit card debt
• Not applying for new credit more than once every six months
• Leaving unused credit cards open (if they don't charge an annual fee) to increase your average account age

You can also start comparing some of the best refinancing lenders. Check out Rocket Mortgage® if you're looking for a streamlined online application process with great customer reviews. Compare its offerings with a few other providers and see if you can get prequalified so you can get a sense of which lender offers you the best rates.

Prequalifying, unlike pre-approvals, uses a soft credit check so it shouldn't hurt your credit score. Save the pre-approvals for when you're ready to go ahead with the refinance. And when you get to this point, make sure you get all your applications in within 30 days of each other. This way, they'll only count as one hard credit check on your report instead of several, which will only drop your score a few points.

You'll have to keep checking back every few months to see where rates are. But you probably don't have to worry about missing out on lower rates. Interest rates are only expected to go down for the foreseeable future, so whether you refinance in April or August, you'll probably still snag a cheaper rate than you're paying now.