Today’s higher mortgage rates have increased the cost of buying a home, but most recent homebuyers have a plan: buy now, refinance later. According to a survey conducted by U.S. News in September, 84% of homebuyers who purchased a home with a mortgage in the previous year said they plan to refinance. But what does a mortgage refinance involve, and what are the benefits and drawbacks? Read on to learn more.

What is a mortgage refinance?

A mortgage refinance is the process of replacing a current mortgage on a home with a new mortgage with new terms. Popular reasons to refinance include to obtain a lower interest rate and monthly payment, to take home equity out as cash, to obtain renovation financing or to remove mortgage insurance premiums on an FHA loan.

What are the pros and cons of refinancing?

If you have the opportunity to refinance a mortgage into a lower rate, the major benefit is the potential for significant savings on your monthly payment. For example, if you have a $400,000 loan balance and refinance from a 7.5% rate (7.585% APR*) rate to a 6% rate (6.078% APR), you would expect to see your monthly principal and interest payment drop from about $2,800 to $2,400. That’s a savings of roughly $400 a month or about $4,800 a year. The longer you keep your new loan, the more savings would add up.

The major drawback of a refinance is that it requires applying for and obtaining a new mortgage. This means you must fulfill the qualification requirements for your new mortgage, such as meeting credit score minimums and debt-to-income maximums. You must also pay closing costs, which typically total about 2-6% of the loan amount. However, it is often possible to finance the closing costs into the new loan, meaning you may be able to reduce your monthly payment while paying nothing out of pocket.

When will it be possible to refinance to a lower rate?

Typically, before you can refinance your mortgage into a similar one with a lower rate, you must wait until the rates available on new mortgages drop below the rate on your current mortgage.

While many experts expect mortgage rates to fall over the coming years, no one knows the future direction of rates for certain, and planning to refinance always involves some uncertainty. Currently, the Mortgage Bankers Association predicts that the average 30-year fixed-rate mortgage rate will drop from 7.2% in the fourth quarter of 2023 to 6.1% in Q4 2024 and 5.5% in Q4 2025.

However, predictions are only predictions. Rates may fall faster, slower or not at all depending on economic factors, government policy and other influences. For that reason, it’s important to ensure that any mortgage you obtain is affordable and not to treat a refinance plan as a guarantee.


If you’re ready to buy a home now but are hesitating because of high mortgage rates, it may be worth exploring a plan to buy now and refinance later. This could allow you to get into the home you want sooner and begin building equity before home prices potentially rise further, then take advantage of a lower rate when it becomes available.

For a free mortgage consultation to learn about your options, get in touch today.

* APR = annual percentage rate

By refinancing a mortgage, total finance charges may be higher over the life of the new loan. Contact your Draper and Kramer Mortgage Corp. loan officer to discuss the total expected costs and savings of your refinance. Rates, APRs and payments shown are included for example purposes only and should not be construed as quotes, offers for financing or promises of future availability.