Personal Finance

You can't always refinance a mortgage to capitalize on lower rates: Here's when a lender may say 'no'


Mortgage rates already priced in today's cut and future cuts, says Zillow's Divounguy

The Federal Reserve slashed interest rates by a half percentage point, or 50 basis points, on Wednesday, its first rate cut since March 2020.

Even before the Fed rate cut, some homeowners had already taken advantage of recent declines in mortgage rates to refinance. Refinance activity increased to 46.7% of total applications during the week ending Sept. 6, up from 46.4% the week before, according to the Mortgage Bankers Association.

Others have been waiting for the Fed to take action. To that point, 18% of consumers said they planned to refinance a loan once rates go down, according to a report by NerdWallet. The financial services site polled more than 2,000 U.S. adults in July. 

But it might be too soon to benefit from refinancing a mortgage.

“You want to wait for rates to be at a place where you’re happy to keep that rate for a period of time,” said Melissa Cohn, regional vice president of William Raveis Mortgage in New York.

Plus, experts say applying for a refi doesn’t mean you’ll get approved. Your lender may say “no.”

“Regardless of what the Fed is doing, regardless of what’s happening in the broader economy, remember that you have a part to play in all of this, too,” said Jacob Channel, senior economist at LendingTree.

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Factors that could limit your ability to refinance

You’re paying closing costs each time you refinance, “so you don’t want to spend money unwisely,” Cohn said.

It may be in your best interest to only consider a mortgage refinance every few years, if your financial situation has changed or if rates are falling “really dramatically,” Channel explained.

“Otherwise, you put yourself in a situation where you’ve spent so much money refinancing that your monthly savings don’t really account for much,” he said.

‘It may be worth talking about a mortgage modification’

In some instances, a mortgage modification, or changes to your original home loan to make your payments more manageable, might be an option.

“If you’re really, really struggling, and say something catastrophic has happened in your life … instead of a refinance, it may be worth talking about a mortgage modification with your lender,” said Channel.

To be sure, the broader housing market is not at a risk of a collapse and most homeowners are “not teetering on the edge of foreclosure,” he said.

But if you are experiencing financial hardship, your lender may be willing to modify the terms of your mortgage, said Channel. Reach out to your lender and see if you qualify.

Remember that whether a mortgage refinance makes sense will depend on factors like your income, how long you anticipate staying in your home and your closing costs, said Cohn.

“There’s no single rule of thumb that applies to everyone in the country,” she said.

Talk with your lender or broker, or reach out to a financial advisor to determine what may work best for you, said Channel. 

“They’ll be able to walk you through the specifics of your situation,” he said.



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