When should I refinance my mortgage? Plus, the best lenders to do it with

Refinancing a mortgage can give homeowners a big break. It allows them to reset their rate, length of their loan, monthly payment and many other elements of their term sheet that can have substantial financial implications. 

As the rate environment cools off after hitting decade-high peaks in 2023 and 2024, more homeowners are rushing to secure better deals. The number of refinance applications was up 52% year-over-year during the week ending April 22, the latest data available, according to the Mortgage Bankers Association. 

But mortgage rates have been volatile this year as oil prices jump in response to the Iran war, adding to an already challenging housing market, and making it difficult to decide when to refinance. 

The answer has a lot to do with why a homebuyer wants to refinance. Below, we tackle three common scenarios and when to plan the strategy

In September 2023, 82% of recent homebuyers planned to “buy now and refinance later,” according to a US News and World Report survey conducted by PureSpectrum. A month later, the 30-year fixed-rate average hit 7.79%.

It's taken years for rates to creep down. In fact, economists predicted rates would hover around 6% this year, giving optimism to those hoping to refinance in 2026. And in late February, two days before the start of the Iran war, the 30-year fixed-rate reached 5.98%.

Since then, rates have jumped to 6.46% before yo-yoing down and up. If you’ve been recently wondering when you should refinance, these guidelines can help you.

Experts typically recommend waiting until you can get a rate that’s 0.50% to 0.75% lower than your existing rate. 

Refinancing to any rate that’s lower than the one you currently have will likely save you money over the life of your loan. But to make refinancing worth it, you want to confirm you’re saving more than you will have to spend on closing costs, which can be 2% to 6% of the refinance loan amount.

Experts typically recommend waiting until you can get a rate that’s 0.50% to 0.75% lower than your existing one. 

Recently, CNBC Select crunched the numbers on how much a 0.50% rate drop could save someone who had a mortgage rate of 7.0% and refinanced to 6.5%. To do this, we used a homebuyer who financed the purchase of a new median-priced home —$400,500 as of January — with a $360,450 mortgage after putting 10% down. 

We found that a 0.50% change in rate would save the borrower over $100 monthly, and $40,000 over a 30-year term. 

Wait to optimize your credit

You shouldn’t just look at the market to figure out the best time to apply: You should make sure your credit score is as high as possible. 

As of March — the most recent month that data is available — the average 30-year fixed-rate mortgage for someone with a 780 credit score or higher is nearly a point lower than the rate for someone with a 620 credit score, according to Experian. 

Chances are, you may not need a drastically different mortgage rate to save a lot of money — simply focusing on improving your credit for six months before refinancing could also help cut costs.

Choose a lender known for lower rates

No matter when you decide to refinance, make sure you’re going with the right lenders. CNBC Select likes Better Mortgage because is has lower rates than the industry average. 

It will also allow you to roll your closing costs into your loan when you refinance. Keep in mind, this means your loan will be larger and you’ll end up paying more in interest over the life of the loan, but it helps if you don’t have the cash upfront.

Most people have 30-year mortgages but a shorter term usually can come with a lower rate and less interest over the life of the loan. The downside? You’ll be paying more each month than you would with a 30-year term. 

If you’re considering refinancing your 30-year mortgage to a 5-, 10- or 15-rate, here’s what to think about when trying to time the application:

• How much time do I have left on my mortgage? For example, if you’re already at or near the halfway point of your mortgage term, it may not make sense to refinance to a 15-year mortgage and pay closing costs for minimal savings. 
• Do I have enough money to comfortably afford the mortgage payment associated with a shorter term? Generally, you want to spend no more than 30% of your gross income on housing expenses, according to guidelines set by the Department of Housing and Urban Development.
• Are my finances in a good spot? You want to put your best foot forward when applying for a loan —  this means a strong credit score, a low debt-to-income ratio and a high loan-to-value ratio. Improve your credit, pay down debt and build equity in your home to get the best rate and lowest monthly payment on a shorter-term loan. 

Generally, Rocket Mortgage is a great option if you’re thinking about refinancing to a shorter term. We like Rocket because it regularly receives top marks in customer service, ranks among the top lenders in J.D. Power’s mortgage servicer and origination satisfaction surveys, and the Better Business Bureau gave it an A+. 

Rocket also has great customer service hours, an online chat and an easy-to-use app.

If you’re looking to refinance to tap your home equity — for a home renovation or investment in a business venture — you’ll want to make sure you own a significant amount of your home outright and that you can comfortably afford a larger loan. 

Most lenders want to see a loan-to-value ratio that is no more than 80%, meaning you’ll need to own 20% of your house after you take out a loan.

So if you’re looking to get a cash-out refinance and want to access 10% of your home’s value, you’ll need to have at least 30% equity before you want to apply. 

FourLeaf Credit Union is a great option for a cash-out refinance. It offers all the perks of a credit union — including low rates — but unlike most, it’s easy to join. You’ll just need to open a savings account and deposit $5. 

Use CNBC Select’s mortgage refinance calculator

Whether you’re going to apply today or you’ve decided to wait a few months, you can better understand what refinancing could look like for you with CNBC Select’s mortgage refinance calculator. 

At CNBC Select, our mission is to deliver high-quality service journalism and comprehensive consumer advice to our readers, enabling them to make informed financial decisions. Every mortgage review is based on rigorous reporting by our team of expert writers and editors with extensive knowledge of financial products. While CNBC Select earns a commission from affiliate partners on many offers and links, we create all our content without input from our commercial team or any outside third parties and we pride ourselves on our journalistic standards and ethics.

CNBC Select reviews mortgage products using a variety of criteria, including average rates, terms, availability, fees, types of loans offered, online experience and customer satisfaction. 

Additionally, we incorporate findings from independent sources, including lender scores from the J.D. Power mortgage origination and servicing surveys and ratings from the Better Business Bureau.

For home equity loans, we review rates, repayment terms, the amount of equity required and the minimum and maximum loan amounts available.

We also consider requirements for credit scores, debt-to-income ratios and combined loan-to-value ratios.

Catch up on CNBC Select's in-depth coverage of credit cards, banking and money and follow us on TikTok, Facebook, Instagram and Twitter to stay up to date.