When you can’t refinance a mortgage to capitalize on lower rates

The Federal Reserve slashed interest rates by a half percentage point, or 50 basis points, on Wednesday, its first rate cut since March 2020.

Even before the Fed rate reduction, some homeowners had already taken advantage of recent declines in mortgage rates. Refinance activity increased to 46.7% of total applications during the week ended Sept. 6, up from 46.4% the week before, according to the Mortgage Bankers Association.

Others have been waiting for the Fed to take action. To that point, 18% of consumers said they planned to refinance a loan once rates go down, according to a report by NerdWallet. The financial services site polled more than 2,000 U.S. adults in July. 

But it might be too soon to benefit from refinancing a mortgage.

“You want to wait for rates to be at a place where you’re happy to keep that rate for a period of time,” said Melissa Cohn, regional vice president of William Raveis Mortgage in New York.

Plus, experts say applying for a refi doesn’t mean you’ll get approved. Your lender may say “no.”

“Regardless of what the Fed is doing, regardless of what’s happening in the broader economy, remember that you have a part to play in all of this, too,” said Jacob Channel, senior economist at LendingTree.

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1. Your financial standing has changed

Make sure your finances are in order. Otherwise, your lender might not approve your mortgage refinance, experts say.

Applying to refinance is similar to applying for a mortgage. A change in your financial situation, like a layoff or lower income, or higher debt, could mean you don’t qualify.

“Your mortgage rate and whether or not you get approved for a loan or refinance … depends on you,” said Channel.

Think about all of the “variables that got you approved in the first place,” said Cohn, such as your credit score, your income and how much debt you’ve taken on recently. A change in those variables could affect your ability to be approved.

2. You haven’t had your loan long enough

How soon you can refinance your mortgage will depend on your loan time and lender’s requirements.

You can refinance within days of closing with some types of loans, while others may require a year’s worth of payments, according to LendingTree.

3. You refinanced recently 

Technically, there are no hard limits on how many times you can refinance your mortgage, Channel said. 

But some lenders will have waiting periods, he said. In those scenarios, if you refinance today, you might not be able to do so again in December if rates move lower after the Fed’s last meeting of the year. 

“While there’s maybe not a hard limit on how many times you can refinance, you probably don’t really want to be doing it that often,” he said.

You’re paying closing costs each time you refinance, “so you don’t want to spend money unwisely,” Cohn said.

It may…