How to get ready to refinance if the Fed cuts interest rates

Federal Reserve Chair Jerome Powell hinted at possible interest rate cuts in the near future during a speech on Friday at the central bank’s annual event in Jackson Hole, Wyoming. 

“The shifting balance of risks may warrant adjusting our policy stance,” Powell said.

That may bode well for homeowners who have been hoping to refinance mortgages with high rates, experts say.

The central bank’s benchmark rate influences many borrowing costs for Americans. Mortgage rates closely track the 10-year Treasury yields, which are sensitive to changes in the economy, including monetary policy decisions.

If the Fed does cut interest rates in September, “there could be some clear implications for mortgage interest rates,” said Jessica Lautz, deputy chief economist at the National Association of Realtors. 

“That would certainly be good news,” she said. 

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Lower mortgage rates often result in lower borrowing costs for home loans. For homebuyers who have struck out in the housing market due to a combination of high home prices and high interest rates, lower borrowing costs could help them secure better loan terms.

Homeowners, meanwhile, “can refinance” to benefit from lower rates, Lautz said, or “they can also make a move” by becoming home sellers.

Mortgage rates have generally declined in recent months despite some volatility. The average 30-year fixed rate mortgage was 6.58% for the week ended on Thursday, Aug. 21, flat from the week prior, according to Freddie Mac.

Overall, experts say it is important for homeowners with higher-rate mortgages to start paying attention to interest rate movements, and preparing for opportunities to refinance.

“Getting the preparation done beforehand will allow you to move quickly,” said Keith Gumbinger, vice president of mortgage website HSH.

Before you refinance, you want to make sure mortgage rates have “dropped sufficiently” for you to see real savings, Melissa Cohn, regional vice president of William Raveis Mortgage, recently told CNBC.

There are different rules of thumb used to determine when rates have declined enough. According to Redfin’s Zhao, homeowners should consider a refi if rates are at least 50 basis points lower than their current rate.

Rates can change fast, so it’s smart to know that target number and start preparing ahead of time, experts say.

“If you’re looking to refinance, especially in this type of interest rate climate, you need to be opportunistic, which means you probably need to move quickly,” said Gumbinger. 

Here are five key steps to take: