Should You Refinance Your Mortgage in 2024?

In 2020 and 2021, mortgage lenders were eager to drum up business in the wake of a pandemic-fueled economic crisis. As such, they offered attractive mortgage rates, and many existing homeowners rushed to refinance their mortgages as a result.

All told, new home buyers and existing homeowners with strong credit were looking at 3% mortgages back then. But today's borrowing environment is very different. Not only are mortgage rates considerably higher than they were in 2020 and 2021, but they're also some of the highest rates we've seen in years.

As of Nov. 22, the average rate on a 30-year mortgage was 7.29%, according to Freddie Mac. That's an improvement from earlier in the fall. But it's still worlds higher than 3%.

As such, now really isn't a great time to refinance a mortgage. And because rates aren't expected to drop so dramatically in the coming months, there's a good chance that 2024 won't be a great time to refinance a home loan, either. But there may be an exception to the rule.

When it's not just about lowering your mortgage's interest rate

For many people, the goal of refinancing is to lower the interest rate on their home loan for lower monthly mortgage payments. So if you're sitting on a mortgage you signed at 3.25% and are now looking at 7.29% in the course of a refinance, that won't make sense.

But there's a reason why people sometimes choose to refinance, and it's to take cash out of their homes. Maybe you really need to finish your basement so you can spread out more comfortably or build an office that allows you to work from home more efficiently. If you don't owe a ton of money on your mortgage and can snag a lower interest rate on a refinance than on a home equity loan, then a refinance could make sense.

Similarly, let's say you owe a lot of money on your credit cards, and you're looking at an exorbitant interest rate on those balances. Perhaps you owe $50,000 on your mortgage at 3%, but $50,000 on your credit cards at 21%.

If you do a $100,000 cash-out refinance at 7.29%, you'd use the first $50,000 to pay off your existing mortgage balance and the remaining $50,000 to pay off your cards. Otherwise, you'd be looking at an average interest rate of 12% if you were to stick to your current mortgage and credit cards. So in this example, it makes sense to raise the rate on your mortgage because it allows you to lower the interest rate on your debt overall.

Shop around either way

Mortgage refinances may not be attractive to most homeowners in 2024. But refinancing might make sense for you and your finances.

If you decide to go that route, make a point to shop around with different lenders. You may be surprised to see a range of offers depending on factors that include your credit score and income. Do your research so that if you do decide to refinance, you're able to do so as cost-effectively as possible.