Will 2023 Be a Good Year to Refinance a Mortgage?

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KEY POINTS

  • Right now, refinancing is off the table for many borrowers due to higher mortgage rates.
  • Rates could come down in 2023, but that's unlikely to happen right away.
  • Make sure your credit score is in good shape and you're not planning to move in the near future before refinancing.

It's been a tumultuous few years in the housing market, and things are still hard to predict.

When mortgage rates dropped to record lows in 2020, homeowners across the country rushed to refinance their loans. And many were able to reap a lot of savings in the process.

But refinance volume has slowed down significantly this year, and for good reason. Mortgage rates have been rising sharply since the start of 2022. And in recent weeks, they've reached a 20-year high. That hardly makes the case to move forward with a refinance for the average borrower.

But while mortgage rates may be high right now, things could change in 2023. The question is: Will they change for the better, or will mortgages get even more expensive?

A tough call to make

There's reason to believe that borrowing rates will continue to rise in 2023, and that extends to mortgage rates. The Federal Reserve is on a mission to slow the pace of inflation. To do so, it's been implementing a series of interest rate hikes designed to encourage consumers to borrow less and spend less.

If the Fed keeps hiking rates upward, home purchases could get even more expensive to finance in 2023, and refinancing may become an even less appealing option. But if inflation levels start to cool early on in the year, the Fed might relax its interest rate policies, and borrowing rates could start to come down. As such, some homeowners may find that 2023 ends up being a good time to do a refinance -- if not during the first half of the year, then perhaps during the second half.

Should you plan to refinance in 2023?

You may be interested in refinancing so you can lower your monthly mortgage payments. But remember, the decision to refinance shouldn't just be based on how rates are trending. You should also consider some other key factors.

One of those is your credit score. The higher that number, the more likely you are to qualify for a refinance and snag a competitive interest rate on your new mortgage.

If your credit score isn't in great shape, you may not want to refinance. Or, you should make a plan to boost your credit over the next few months to make refinancing more feasible in 2023.

Another thing to think about is how long you plan to stay in your home. Just as you pay closing costs to finalize a regular mortgage, so too do you pay when you refinance. And so you'll need to make sure you intend to stay in your home long enough to recoup those costs and come out ahead financially. If your plan is to move to a new home in 2024 or 2025, then refinancing next year may not make sense.

Ultimately, it's too soon to know whether 2023 will be a good year to refinance. But even if rates come down, that doesn't automatically mean you should jump to get a new mortgage. Instead, think about your personal circumstances -- financial and logistical -- when making that decision.

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