Weeks before the recent half point Fed overnight rate reduction, some homeowners were lining up to take advantage of lower mortgage interest rates. As of mid-September, nearly 47% of the new mortgage loans were homeowners refinancing an existing loan.

Homeowners with higher rate mortgages are anxious for more rate drops so they can refinance and lower their payments. Nerdwallet reports that about 18% of homeowners say that they plan to refinance when rates go down. But how much of a drop will it take to make sense to go through the time and expense of a refi? There is no ‘standard’ answer because everyone has a different loan term and interest rate. 

If you have a $300k mortgage with a 30-year term – Principal and Interest payments for a 7% loan would be 1,996 a month. At 6% it’s a couple hundred dollars less – 1,799 a month. It you can get it down to 5% – the payment would be 1,610 per month. Two percentage points can save you almost 5k per year in interest payments.

Just applying for a refi doesn’t mean you’ll get approved. There are several factors that could limit your ability to get lender approval. 

• If you’ve lost a job, or have a change in your financial standing. 
• If your current loan if very new either from a recent purchase or recent refinance– they may not allow a refinance.

If you’ve crunched the numbers and believe that now it a good time to get a new loan… but your lender won’t extend a new loan; consider a mortgage modification. That can change your current loan to make payments more manageable. The mod could extend the period of the loan, or in some cases – may actually lower the interest rate. 

We expect the Fed will continue on their rate lowering plan as they see the economy improve. You might consider waiting it out for a lower rate.