Economist Warns: Refinancing May Not Benefit Homeowners Planning a Quick Move

Refinancing may not be beneficial for most homeowners planning to move in the near future, according to Realtor.com senior economist Jake Krimmel. The essence of refinancing lies in understanding whether a move surpasses the “breakeven point,” which assesses if the upfront costs are outweighed by the savings from a lower interest rate.

Krimmel emphasizes that factors such as “loan size, remaining term, and, most importantly, how long the borrower plans to stay in their home all matter.” He suggests a simple calculation: “closing costs divided by monthly savings.” This formula helps homeowners determine if refinancing is worth the investment.

Despite the Federal Reserve cutting interest rates for the third consecutive time, it doesn’t guarantee a drop in mortgage rates. Mortgage rates do not directly mirror the Fed’s decisions but closely follow the 10-year Treasury yield.

HOMEOWNERS INSURANCE COSTS COULD SPIKE OVER NEXT 2 YEARS

While policymakers have indicated that there may be only one rate cut in the upcoming year as rates approach a neutral level, economists predict a slight dip in mortgage rates, expected to hover around 6.3% next year. Although this decline is modest—down from an average of 6.6% in 2025—it raises questions about the viability of refinancing, according to Krimmel.

A “for sale” sign is seen outside a home on a canal in Cape Coral, Florida, on July 2, 2024. (Photo by OCTAVIO JONES/AFP via Getty Images / Getty Images)

HOUSING AFFORDABILITY CRISIS HAMMERING RURAL AMERICA

Refinancing isn’t a cost-free endeavor; homeowners must still cover closing costs on the new loan. Krimmel reiterates that the savings from lower monthly payments must outweigh these costs for refinancing to be worthwhile.

Newly constructed single-family homes are shown for sale in Encinitas, California, on July 31, 2019. (Reuters/Mike Blake)

Refinancing is most beneficial when the new mortgage rate is approximately 0.5 to 1 percentage point lower than the existing rate. This difference provides sufficient savings to justify the refinancing costs, according to Krimmel.

MORE THAN HALF OF US HOMES LOST VALUE OVER THE LAST YEAR

Currently, most homeowners possess mortgage rates significantly lower than the prevailing market rates, making refinancing a potential loss. This phenomenon is often referred to as the “lock-in” effect. For instance, only those with a mortgage rate of 6.65% or higher would reach the breakeven point where refinancing could be advantageous. Presently, over 80% of homeowners have mortgage rates below 6%, indicating that only a small segment would benefit from refinancing in the near future.

A sign is posted in front of a home for sale on August 7, 2024 in San Rafael, California. According to a report by Zillow, 30-year fixed mortgage rates have dropped 31 basis points to 6.06% while the 30-year fixed refinance rate has dropped 1.15% to (Justin Sullivan/Getty Images)

For those planning to move soon, Krimmel asserts that refinancing “likely” won’t be advantageous. The individuals who stand to gain the most are those who purchased homes recently—within the last two to three years—when rates were between 7% and 8%. Even a slight reduction in market rates could place them more than 1% “in the money,” making refinancing appealing. However, these borrowers typically have substantial loan amounts and intend to stay in their homes for at least five more years, making refinancing savings more significant.

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Moreover, any minor rate reductions are “pretty irrelevant” for homeowners who are “out of the money” or locked into low 3% to 4% mortgages. Homeowners should also keep in mind that it’s not solely about average mortgage rates but rather the specific rate they can secure. Factors such as credit scores, down payments, and diligent shopping around can significantly influence outcomes, often more than fluctuations in Fed policy, according to Krimmel.

Refinancing may not be beneficial for most homeowners planning to move in the near future, according to Realtor.com senior economist Jake Krimmel. The essence of refinancing lies in understanding whether a move surpasses the “breakeven point,” which assesses if the upfront costs are outweighed by the savings from a lower interest rate.

Krimmel emphasizes that factors such as “loan size, remaining term, and, most importantly, how long the borrower plans to stay in their home all matter.” He suggests a simple calculation: “closing costs divided by monthly savings.” This formula helps homeowners determine if refinancing is worth the investment.

Despite the Federal Reserve cutting interest rates for the third consecutive time, it doesn’t guarantee a drop in mortgage rates. Mortgage rates do not directly mirror the Fed’s decisions but closely follow the 10-year Treasury yield.

HOMEOWNERS INSURANCE COSTS COULD SPIKE OVER NEXT 2 YEARS

While policymakers have indicated that there may be only one rate cut in the upcoming year as rates approach a neutral level, economists predict a slight dip in mortgage rates, expected to hover around 6.3% next year. Although this decline is modest—down from an average of 6.6% in 2025—it raises questions about the viability of refinancing, according to Krimmel.

A “for sale” sign is seen outside a home on a canal in Cape Coral, Florida, on July 2, 2024. (Photo by OCTAVIO JONES/AFP via Getty Images / Getty Images)

HOUSING AFFORDABILITY CRISIS HAMMERING RURAL AMERICA

Refinancing isn’t a cost-free endeavor; homeowners must still cover closing costs on the new loan. Krimmel reiterates that the savings from lower monthly payments must outweigh these costs for refinancing to be worthwhile.

Newly constructed single-family homes are shown for sale in Encinitas, California, on July 31, 2019. (Reuters/Mike Blake)

Refinancing is most beneficial when the new mortgage rate is approximately 0.5 to 1 percentage point lower than the existing rate. This difference provides sufficient savings to justify the refinancing costs, according to Krimmel.

MORE THAN HALF OF US HOMES LOST VALUE OVER THE LAST YEAR

Currently, most homeowners possess mortgage rates significantly lower than the prevailing market rates, making refinancing a potential loss. This phenomenon is often referred to as the “lock-in” effect. For instance, only those with a mortgage rate of 6.65% or higher would reach the breakeven point where refinancing could be advantageous. Presently, over 80% of homeowners have mortgage rates below 6%, indicating that only a small segment would benefit from refinancing in the near future.

A sign is posted in front of a home for sale on August 7, 2024 in San Rafael, California. According to a report by Zillow, 30-year fixed mortgage rates have dropped 31 basis points to 6.06% while the 30-year fixed refinance rate has dropped 1.15% to (Justin Sullivan/Getty Images)

For those planning to move soon, Krimmel asserts that refinancing “likely” won’t be advantageous. The individuals who stand to gain the most are those who purchased homes recently—within the last two to three years—when rates were between 7% and 8%. Even a slight reduction in market rates could place them more than 1% “in the money,” making refinancing appealing. However, these borrowers typically have substantial loan amounts and intend to stay in their homes for at least five more years, making refinancing savings more significant.

GET FOX BUSINESS ON THE GO BY CLICKING HERE

Moreover, any minor rate reductions are “pretty irrelevant” for homeowners who are “out of the money” or locked into low 3% to 4% mortgages. Homeowners should also keep in mind that it’s not solely about average mortgage rates but rather the specific rate they can secure. Factors such as credit scores, down payments, and diligent shopping around can significantly influence outcomes, often more than fluctuations in Fed policy, according to Krimmel.