Should You Wait for Lower Mortgage Rates to Buy or Refinance?

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Where rates actually are

Welcome to Mortgage Mom Radio. I'm Debbie Marcoux, the Mortgage Mom, and today we're talking about whether you should wait to buy or refi for interest rates to go lower. We've been on a great path: a year ago rates were about 7¼ to 7½% — they touched 8% at one point — and as of today we're at an average of about 6¼%. Why do I say average? Because it depends on the loan program. Conventional rates run higher than government loans, and FHA and VA rates today are actually in the 5% range. So I'm getting calls every day: should I pull the trigger on a refinance now or wait for lower? Should I buy now, or wait for rates — or wait for the election? Refinance and purchase get slightly different answers, so let's take them in turn.

Refinance on need

A refinance is done based on need. If you have no need — your rate doesn't bother you, you're not bleeding money every month — sit still and let it ride. But if you need debt paid off, or you need to drop your payment to make monthly cash flow comfortable, there is no reason to wait to see if rates go lower. Remember: you can refinance now, and refinance again, and again.

The thing to mind is cost. The refinance has to make sense — the monthly savings need to justify it, or it needs to set you up for a cheaper refinance later. Cash-out refinances are simply priced higher; they're more expensive, and it's harder to structure lender credits to cover the closing costs. A simple rate-and-term refinance — nothing but lowering the rate and payment — we can do all day long with credits covering the costs, so it costs you nothing and still drops your payment.

When we do go cash-out — debt consolidation, or combining a first and second into one loan — we want to do it once, and size it right. If you're renovating and the contractor's bid says $50,000, I've renovated three of my own homes and I promise you never land at that number. They repaint the kitchen, and now the dining room connected to it needs paint, and then the living room it opens onto. They open walls and find surprises. So we make sure we're pulling enough to actually finish the work — one refinance, one set of closing costs (which can be rolled into the loan; you don't have to come out of pocket).

And sometimes the move is a program change: if you're in an FHA loan paying mortgage insurance and you've built a ton of equity, we look at moving you to conventional — still a rate-and-term refinance — removing the mortgage insurance and dropping the rate at the same time.

If you're a streamline candidate — FHA or VA, just lowering the rate and payment — remember you can do those after as few as six payments (VA runs a little longer, closer to seven months). If it costs you nothing to do it, why keep paying a higher payment every month? Drop it today, and drop it again in six or seven months if rates keep falling.

“Did rates drop half a percent last week?”

Since the Fed's announcement last week I have gotten call after call — from buyers, from real estate agents, from people mid-transaction — asking the same thing: did interest rates drop by half a percent? They did not. Mortgage rates today are actually slightly higher than they were a week ago, when the Fed cut. Why? Because mortgage rates are based on the market and on anticipation. Everybody was already pricing in that cut; the rate sheets were hyped up before it landed. We got the cut, and now we're in the watch-and-see phase — a little of the excitement has come off.

The Fed said in its press conference that the goal is to cut again in November, again in December, and to keep cutting through 2025 and into 2026. You'd think rates would be falling on that news — but the market is asking: are we really going to get that November cut? Will inflation turn the wrong way and stop them? Nobody knows, so we watch the reports, week by week, for the five weeks until the next meeting. Meanwhile, keep perspective: rates are still far better than a year ago, six months ago, three months ago, even a month ago. Which brings me back to the rule — you never sit and try to time it. If there's a need and it would significantly help you, you do it, and we look at doing it again if rates tumble further.

Should buyers wait?

Buying a home is personal, and it's driven by need: you've outgrown the place, your landlord is selling, your job is relocating you. So I wouldn't say sit and wait — but I also was never a big advocate of the old “marry the house, date the rate” line from 18 months ago. Dating the rate when the payment puts you in over your head is not something I'll recommend. What I pushed instead were 2-1 buydowns and structures that reduce the rate for the first couple of years at an affordable payment while the market comes back to you — and that's still my philosophy.

Here's what's changed: affordability. If you got pre-approved 18 months, a year, even six months ago and didn't like your number, get re-checked, because as rates come down, the same payment buys a higher price. On a $500,000 property, a 1% drop in rate on a 30-year note is about $500 a month. That's also why I've been pushing streamlines so hard — we have so many FHA and VA clients sitting in the sevens who could be in the fives today. And with the national average home sale price around $448,000 last I checked, a $500,000 mortgage is a very standard mortgage these days.

Now the competition piece. Get this: since the Fed's half-point cut last week, mortgage loan applications are up 46%. That's from one rate cut. What happens on cut number two and cut number three? Buyers come out of the woodwork — people get up off the couch and out onto the street. I checked listings again today: we're at roughly 1.8 million listings nationwide, still well below the roughly 2.4 million we had in 2019 before the pandemic — about a three-month supply. As rates get lower, that shortage is going to feel really icky again. If you've been telling yourself you really want to buy, bells should be ringing: start before the craziness begins.

The election is not a rate strategy

The other thing I hear every day: “Should I wait for the election? Whoever wins will drop interest rates.” Let me be very clear, without getting political: the Federal Reserve decides the policy rate, and the Federal Reserve is independent of both parties. Those 3% rates in 2020 were a direct result of the pandemic — the Fed dropping rates to stave off a massive recession — not of whoever occupied the White House. The Fed cut by half a point last week; that had nothing to do with either party. It says it plans to cut in November and December; that has nothing to do with either party either.

Here's the honest connection between your vote and your rate: the Fed reacts to the economy. If inflation stays low and jobs hold up, the cuts continue; if inflation turns, they stop. So vote for whoever you believe is best for the economy — but understand that where we are today and where we'll be in December, January, or February after an election will look very, very similar. It takes a long time to get into trouble and a long time to get out. If you need to buy, my recommendation is to get a jump ahead of all the people who've been waiting and watching — get out in front of them before they're your competition.

And one aside from the chat, because I get this a lot: yes, the stimulus-check era put money in nearly everyone's hands, including plenty of people who didn't need it, and that spending fed the inflation we've been fighting since. That's history now — but it's why the Fed has been where it's been.

Locked into 3% but drowning in debt

One more group I need to talk to: clients with a very low rate on their mortgage who are convinced there's no help for them. American credit card debt is at an all-time high. Many of you have a lot of it, and you won't call because you're dead set against losing your 3% first mortgage. Please don't put yourself in that position. There are home equity lines of credit that leave your first mortgage untouched, and full cash-out refinances where the blended math genuinely works — when you compare what you're paying on cards and equity lines against the balances involved, sometimes giving up the low rate is the better move, and sometimes it isn't. Linda from the chat and her husband are a real example: he didn't want to give up their 3.6% first, and it still penciled out better to consolidate the HELOC. We run the numbers, we show you, and the decision is yours — we don't bite, we don't push, and if we have nothing that helps you today, we'll say exactly that and put you on the list to call when rates get there.

Q&A: ducks in a row?

Ynot asks: “Is it worth waiting until all ducks are in a row to start looking, or should it be an ongoing process — looking for what and where while getting finances figured?”

Keep doing exactly what you're doing. There's never any harm in window shopping. If you're considering relocating to another state, figuring out where while you save your down payment is the right order of operations: where you're looking drives what you'd spend, which drives what you need down and what income qualifies you. It all goes hand in hand — research on all angles, in every direction, while you move through the process.

Wrap-up

If you don't want to miss a live show, get on my weekly list: text the word LIVE to 844-935-3634 — that's 844-WE-LEND-4 — and you'll get one text a week with the link when I go live. That's also the office number if you want to talk through your own numbers, or use the contact button at mortgagemomradio.com. I'll be back next Wednesday about 1:00. Talk to you all real soon.