September’s interest rate cut has triggered a rush among borrowers to refinance to better loan conditions. For the week ending September 12, refinance applications rose 58% from the previous week, according to data from the Mortgage Bankers Association. With levels 42% higher than the same week one year ago, refinancing is truly in season.
As a new window of opportunity opens for savvy consumers, financial advisors share their go-to strategies and professional advice for refinancing, as well as insights on how these new monetary conditions could impact demand among new homebuyers and the outlook for other asset classes.
Where’s Your Breakpoint?
Done correctly, refinancing can considerably reduce one’s mortgage burden. Yet advisors caution against blindly following the crowd.
If a borrower sells the property before the total savings from their new reduced rate have covered the closing costs of refinancing, they will lose money.
“Before making an emotional decision, we start by modeling a breakeven period that factors in closing costs, points, and the client’s expected time in the property,” says Kevin Newbert, Private Wealth Advisor for Ausperity Private Wealth.
“If someone plans to relocate or upgrade within a few years, the math often does not justify a refinance. For long-term homeowners with steady incomes and a multi-year horizon, however, lowering the rate or shortening the term can compound into substantial lifetime savings and improved cash flow flexibility.”
It’s essential to be precise when pulling the trigger on refinancing.
Jason Lilly, Senior Wealth Advisor at Tenere Wealth Advisors, recommends calculating your breakeven point.
“If you save $200 a month by refinancing and the costs to refinance total $5,000, it will take you 25 months to break even,” he says. “If you plan to remain in your home for at least that long, it could be worthwhile.”
Current rates might force borrowers to wait. For those sitting on the fence, Lilly suggests mapping out what further cuts might do.
“Run your breakeven analysis first and then rerun it with a .5% reduction,” he adds. “How much more would you save if rates were lower by 1/2%? If the savings are nominal, or if you are refinancing to take cash out and pay down higher-rate debt or eliminate PMI, waiting may not be the right strategy.”
“If you do wait, know that a .5% cut doesn’t guarantee mortgage rates will drop,” he warns. “They are more correlated to 10-year Treasury rates, which are more influenced by the Fed funds rate.”
‘Date the Rate’
Loosening monetary settings can ease the entry pain for first-time buyers and market newcomers as well.
September saw the strongest week of borrower demand since 2022, with purchase applications increasing to the highest level since July and continuing to run more than 20 percent ahead of last year’s pace, according to MBA. This signals that many aspiring homeowners are leaving the sidelines and entering the market.
Should first-time buyers move in now or wait and watch the Fed a little longer?
“The best time to buy is when you are financially ready; trying to time the market can be risky,” says Chad Rixse, Wealth Advisor & Director of Financial Planning at Forefront Wealth Partners.
“One industry saying goes… ‘You marry the house and date the rate,’ he adds. “This means if you find the right property, buy it now. If rates happen to drop further in the future, you can always refinance.”
For sideliners with stable employment or flourishing corporate career, strong credit, and a ready down payment, this discounted rate might be the signal to get off the benches and onto the field.
Stock Stoker
The Fed’s adjustment is also hot news for stocks. JPMorgan notes that, since 1980, the Fed has cut rates 12 times when the S&P 500 was within 1% of its all-time high. The market was higher one year later all 12 times with a median return of 15%. But is this rate cut a waving red flag to Wall Street bulls?
“Lower policy rates reduce discount rates for stocks and improve housing affordability, so both can benefit,” says Ryan Nelson, founder of Alchemy Wealth Management.
“Housing still faces a supply constraint that limits how far affordability can improve, while equities react to both rates and earnings,” he adds. “There is no automatic ‘winner,’ which is why we diversify and align risk with time horizon.”
Emilio Cabuto, a Financial Planner at Verus Capital Partners, highlights the risks.
“Deficit spending, trade policy, and concentrated tech leadership could still put pressure on rates and spark volatility,” he says. “For households, the smarter play is to use this easing cycle to both shore up debt and stay invested, aligning decisions with your personal timeline rather than chasing perfect market timing.”
While rate cuts can ignite refinancing and borrowing demand, they shouldn’t dictate an individual’s strategy. For long-term homeowners and financially stable first-time buyers, refinancing or purchasing now could offer savings and opportunities. However, careful consideration of time horizons, breakeven points, and macroeconomic conditions is vital to avoid financial missteps.