Mortgage rates near 6.5% limit refinance options for most homeowners

Mortgage rates have climbed back into the mid-6% range after briefly falling below 5% early this year. The rebound has erased most of the improvement borrowers saw late last year and has pushed many potential buyers and refinancers to the sidelines.

Inflation remains high, and the Federal Reserve has not delivered the rate cuts many had expected. As a result, 30-year fixed mortgage rates now sit near 6.5%, close to where they have been for most of the past two years.

Four lending executives offered views on when homeowners might see better conditions for refinancing.

Joe Magallanes, senior vice president of lending at CrossCountry Mortgage, said some borrowers already have options. He pointed to homeowners who took loans between August and December 2023, when rates were higher than today. A $300,000 30-year loan at 7% carries a payment of about $1,996 and more than $418,000 in total interest. Refinancing at 6.5% would cut the payment by roughly $100 and reduce lifetime interest by about $16,000.

Darrin Seppinni, president of HomeLife Mortgage, said the benefit depends on the borrower's current rate. Those above 7% may see savings sooner, while borrowers with pandemic-era rates near 3% will likely need a larger drop.

Romina Zamanpour, a loan officer and director of product operations at loandepot, said rates do not need to return to 3% or 4% to create opportunities. She noted that more than 20% of mortgaged homeowners held rates above 6% at the end of last year, so a move into the low-6% or high-5% range could prompt some to refinance.

Current forecasts do not point to that level soon. Fannie Mae expects the 30-year rate to end this year near 6.4%, while the Mortgage Bankers Association forecasts 6.5%. Neither projects rates below 6% in the next two years.

Michael Brown, a home loan specialist at Churchill Mortgage, said there is no clear timetable. Most forecasts call for gradual declines over the next 12 to 24 months, but the path is unlikely to be steady. Inflation remains the main variable.

The experts agreed that refinancing can still make sense even without a large rate cut. A modest reduction can matter on larger loans, and some borrowers may refinance to shorten or lengthen the term, remove private mortgage insurance, switch from an adjustable-rate loan, or tap equity to pay higher-rate debt.

Zamanpour said every borrower's situation differs. A $70 monthly saving may be meaningful to one household and insignificant to another. She added that a refinance can solve a specific cash-flow or debt problem even at current rates.

Magallanes noted that credit-card rates are usually much higher than mortgage rates, so using home equity to pay off that debt can lower monthly costs. Seppinni said a refinance can also make sense if it addresses a concrete need rather than waiting for a broad rate drop.

Zamanpour said alternatives such as a home equity loan or HELOC can let borrowers access equity without replacing an existing low-rate mortgage.