I bought a house last October when mortgage rates were near 20 year highs. My family and I previously owned a starter home with a 3.65% mortgage rate. The decision to move was not easy, as it meant replacing our very low mortgage rate with one near 8%. I wrote about this home buying experience last March in an article titled, I love my new house but hate my new mortgage. Today, I’m writing about my recent refinance experience. We managed to refinance last month and bring our mortgage rate down from 8% to 6.50%.
Why we didn’t wait for lower rates
As mortgage rates started to come back down earlier this year, our goal was always to refinance if we could get a rate in the mid 6s. That was the range where the math really started to make sense. At 6.50%, our monthly mortgage payment went to about $2,600 from $3,000 (at 8%). We’re going to see about $4,800 in yearly savings from our recent refinance.
Planning to refinance with a specific number in mind was a key part of our strategy. This allowed us to easily ignore the barrage of pitches trying to get us to refinance when rates were lower but still in the 7s. In that same vein, we also ignored loan officers when they said, “Just wait for the Fed to cut rates because mortgage rates will drop even more.”
Guess what? Since the Fed cut the Federal Funds Rate, mortgage rates have risen from around 6.25% to back over 7%. “Waiting” to refinance never made sense to us because if rates did go meaningfully lower after we just planned to refinance again. While there would be costs to continuously refinance, you can often negotiate these costs lower.
Get multiple quotes, make loan officers work for your business
Due to the current mortgage rate environment, loan officers are hungry for business. Many of them are still not even at 50% of the activity they were seeing during the 2020-2021 housing boom. So while borrowers are paying high rates, you do have leverage with loan officers in terms of negotiating the lowest costs possible. If a loan officer won’t beat a competitor on a rate, they might beat them on closing costs.
In our case, the company that underwrote our first mortgage was offering us a “no-fee” refinance option. We shopped this “no-fee” refinance option with other lenders. While no one would match the reduction in closing costs, two lenders were able to get us a lower rate.
Their pitch to us was this: we can offer you a lower rate than those guys so that the cost of your loan is lower after 5 years even when factoring in closing costs. In real terms, this meant we were quoted a rate of 6.40% compared to our “no-fee” option of 6.75%.
Having this competitor quote in hand allowed us to go back to our original lender and see if they could match the 6.40% rate. They ultimately lowered our rate to 6.50% and we locked that in. This experience is also a lesson in that there is always a lower rate, you just have to find it. Our lender didn’t just magically go from 6.75% to 6.50%. When our lender first quoted us 6.75% and we tried to negotiate it down, they wouldn’t budge. We found leverage by way of a competitive quote and used that leverage to lower our original term.
The outlook for mortgage rates now
Mortgage rates have gone up over the last month even after the Fed cut the Federal Funds Rate. This is a reflection by the market of confidence in the economy. Mortgage rates are impacted by the Fed but ultimately set by supply and demand dynamics in the market place. If there was nervousness about a recession, borrowing costs would have moved lower. So the fact that mortgage rates have gone higher recently suggests that 6.0-6.50% might be the low end of the 30-year fixed mortgage rate for the foreseeable future.
One word of caution here relates to adjustable rate mortgages (ARMs). These mortgages have become more popular this year as lenders suggest to borrowers that they can just refinance before the rate adjusts in the future. Or that the rate might adjust down since mortgage rates remain near twenty year highs right now. We’d point out that, when viewed historically, the 30-year mortgage rate remains below a long-run average. From 1971-2024, the 30-year fixed mortgage rate averaged 7.72%.
In our opinion, there’s a better chance that the decade of 3-5% mortgage rates will be viewed as the exception to the long-term average, and that we are not heading back there. That line of thinking definitely played a role in our decision to refinance last month instead of waiting. Be leery of anyone who says mortgage rates will go back to where they were just because. Where they were is not where they’ve often been.

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