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When to refinance your mortgage as the Federal Reserve cuts rates

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The Federal Reserve is poised to make its first interest rate cut in years on Wednesday. But homeowners shouldn’t bet on the move as an opportunity to immediately refinance their mortgage.

That’s because “a lot of these rate cuts are already priced in,” Chen Zhao, the economic research lead at Redfin, an online real estate brokerage firm, recently told CNBC. 

While mortgage rates are partly influenced by the Fed’s policy, they are also tied to Treasury yields and the economy. Home loan rates have already started to come down in recent weeks, slightly induced in part by favorable economic data and indications the Fed could cut rates.

As of Thursday, Sept. 12, the average 30-year fixed rate mortgage in the U.S. was 6.20%, according to Freddie Mac data via the Fed. That’s down from this year’s peak of 7.22% on May 2.

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It can be very difficult to perfectly time a mortgage refinance by looking at mortgage rate activity alone, said Jeff Ostrowski, a housing expert at Bankrate.com.

“It’s almost impossible to figure out what mortgage rates are going to do from week to week or month to month,” Ostrowski said.

Yet there are ways homeowners can determine when a refinance makes the most sense to them, experts say, especially if more rate cuts are slated before the end of the year.

Here’s how to know when it’s time to refinance your mortgage, according to experts.

‘This is going to be a much smaller wave’

Refinance activity increased to 46.7% of total applications during the week ending Sept. 6, up from 46.4% the week before, according to the Mortgage Bankers Association.

While there has been an increase in refinances as mortgage rates come down, “compared to the massive refinance boom” in 2020 and 2021, “this is going to be a much smaller wave of refinances,” said Ostrowski.

Most homeowners have a mortgage rate below 5%, said Channel.

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A refinance will mostly benefit a “small number of people” who bought homes “when rates were at 8%,” said Ostrowski.

Whether it’s smart for homeowners to refinance their mortgage or not will depend on factors such as their existing borrowing and repayment timeline, experts say.

How to know when it’s time to refinance

If you are thinking about refinancing, look carefully at what’s going on with rates in the market, reach out to lenders and see if doing so now or in the near future makes the most sense for you, Channel said.

“The only person who can decide whether or not refinancing is going to be worth it is you, based on what’s going on in your life,” he said.

Here are three criteria that can help you determine if a refinance makes the most sense to you:

1. You can cut your rate by 50 basis points or more

To be know when it makes sense to refinance, homeowners need to see a notable drop in mortgage rates in order to benefit, experts say. The prevailing rate should be at least 50 basis points below your current rate, Zhao said.

But that’s not a “hard and fast rule,” Channel said.

Some experts set a higher bar: It “makes sense” to consider a refinance if rates have fallen one to two points since you took out the mortgage, Ostrowski said.

Even if your existing mortgage has a high rate, you might want to consider waiting until the central bank is further along in its cuts. The expectation is that rates are to steadily decline throughout the rest of 2024 and into 2025, according to Zhao.

2. You can afford refinance costs

There are two ways to pay for a refinance: with cash up front, or by rolling the expense into your new loan, boosting your monthly mortgage payment.

There’s no such thing as a free lunch when it comes to refinancing a loan, Melissa Cohn, regional vice president of William Raveis Mortgage in New York, told CNBC last month.

Generally, a refinance is going to cost anywhere between 2% and 6% of the loan amount that you are refinancing, said Channel.

For example: If your current loan amount is $250,000 and you’re refinancing the total amount, expect to pay anywhere between 2% to 6% of $250,000, or roughly $5,000 to $15,000.

If you plan to refinance, make sure you can afford the associated costs, like closing costs, an appraisal and title insurance. The total cost will depend on your area.

3. Your savings will outweigh the costs

You can also look into your “break-even point,” or the moment your savings eclipse the cost of the refinance, said Channel.

Here’s an example on doing that math: If you decide to refinance your mortgage and it costs $6,000 and you’re saving $200 a month, divide $6,000 by $200. The result is the number of months that you have before your refinance has “paid for itself.”

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How markets performed for investors so far

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Traders work on the New York Stock Exchange floor on Dec. 18, 2024.

Spencer Platt | Getty Images

For all the drama in the stock market of late, investors’ portfolio balances may not look too different from when President Donald Trump entered office.

There have been some unnerving days amid the Trump administration’s tariff policies. The S&P 500 dropped by 2% or more on six days between Jan. 20 and June 6, according to data provided to CNBC by Morningstar Direct. During that period, there were 18 days where the index shed 1% or more.

Still, the S&P 500’s annualized return for Trump’s second presidency is positive, at 1.58%, Morningstar Direct found.

With more market swings on the horizon amid threats of a worsening trade war and warning signs in the labor market, the numbers serve up an old lesson for investors: When the market is freaking out, it pays to stay calm.

“I always remind clients that volatility doesn’t predict direction,” said Cathy Curtis, the founder of Curtis Financial Planning in Oakland, California. She is a member of CNBC’s Financial Advisor Council.

Other early presidential terms led to bigger returns

Investors have reaped bigger returns in the early days of previous presidents.

The S&P 500’s annualized return was over 34% in the roughly first five months of former President Joe Biden’s tenure, Morningstar Direct calculated. Meanwhile, the index was up around 30% during that same period in former president Barack Obama’s first and second term.

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An ‘unmistakable’ long-term trend

In practice, investors want to keep their money in the market over decades, and many presidencies.

Almost all presidential terms since President Jimmy Carter saw healthy stock market returns for the full four or eight years, Mark Motley, portfolio manager at Foster & Motley in Cincinnati, wrote in a pre-election market update. The exception: President George W. Bush, due to the Great Recession.

Foster & Motley is No. 34 on the 2024 CNBC Financial Advisor 100 list.

To prove that point to clients, Curtis will show a chart of the S&P 500 going back to 1950.

For example, if you invested $1,000 in the index on Jan. 20, 1950, when Harry S. Truman was president, you’d have around $3.8 million as of the market’s close on June 6 of this year, Morningstar Direct found.

“The short-term dips are unmistakable, but so is the overall upward trend,” Curtis said.

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Trump’s ‘big beautiful’ bill may curb access to low-income tax credit

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As Senate Republicans debate President Donald Trump‘s “big beautiful bill”, a lesser-known provision from the House-approved package could make it harder to claim a low-income tax credit.

If enacted as written, the House measure in the “One Big Beautiful Bill Act” would require precertification of each qualifying child for filers claiming the so-called earned income tax credit, or EITC, starting in 2028.

Under current law, taxpayers claim the EITC on their tax return — including Schedule EIC for qualifying children.

The provision aims to “avoid duplicative and other erroneous claims,” according to the bill’s text. But policy experts say the new rules would burden eligible filers, who may forgo the EITC as a result. The measure could also delay tax refunds for those filers, particularly amid IRS cutbacks, experts say.

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“You’re going to flood the IRS with all these [EITC] documents,” said Janet Holtzblatt, a senior fellow at the Urban-Brookings Tax Policy Center. “It’s just not clear how they’re going to process all this information.”

Holtzblatt, who has pushed to simplify the EITC for decades, wrote a critique of the proposed precertification last week.

“This is not a new idea, but was previously considered, studied and rejected for very good reasons,” Greg Leiserson, a senior fellow at the Tax Law Center at New York University Law, wrote about the proposal in late May.

Studies during the George W. Bush administration found an EITC precertification process reduced EITC claims for eligible filers, Leiserson wrote. During the study, precertification also yielded a lower return on investment compared to existing EITC enforcement, such as audits, he wrote.

EITC eligibility is ‘complicated’

Eligibility is complicated.

Janet Holtzblatt

Senior fellow at the Urban-Brookings Tax Policy Center

“Eligibility is complicated,” and residency requirements for qualifying children often cause errors, said Holtzblatt with the Tax Policy Center. 

For 2025, the tax break is worth up to $8,046 for eligible families. You can claim the maximum EITC with adjusted gross income up to $61,555 for single filers and $68,675 for married couples filing jointly. These phase-outs apply to families with three or more children.

As of December 2024, about 23 million workers received the EITC for tax year 2022, according to the IRS. But 1 in 5 eligible taxpayers don’t claim the tax break, the agency estimates.

Changes could ‘complicate’ existing issues

Nine Democratic Senators last week voiced concerns about the House-approved EITC changes in a letter to Senate Majority Leader John Thune, R-S.D., and House Speaker Mike Johnson, R-La.

If enacted, the updates would “further complicate the EITC’s existing challenges and make it more difficult to claim,” the lawmakers wrote.

Higher earners are more likely to face an audit, but EITC claimants have a 5.5 times higher audit rate than the rest of U.S. filers, partly due to improper payments, according to the Bipartisan Policy Center.

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The proposed EITC change, among other House provisions, still need Senate approval, and it’s unclear how the measure could change.

However, under the reconciliation process, Senate Republicans only need a simple majority to advance the bill. 

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Personal Finance

Republicans more likely to use it

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Senate Majority Leader John Thune (R-South Dakota), from left, Sen. John Barrasso (R-Wyoming) and Senator Mike Crapo (R-Idaho) exit the West Wing of the White House on June 4, 2025. The Senate has begun deliberations over President Donald Trump’s massive “Big Beautiful Bill” that narrowly passed the House on May 22, with several Republican senators expressing concerns over its cost as well as cuts to Medicaid and clean energy tax credits.

Photographer: Eric Lee/Bloomberg via Getty Images

Republicans on Capitol Hill are weighing legislation that’s estimated to cut billions of dollars of funding for the Affordable Care Act and cause millions of people to lose their health insurance. Many of their constituents may not be happy about it, polling suggests.

Nearly half, 45%, of adults enrolled in a health plan offered through the ACA insurance marketplace identify as Republicans, according to a new survey by KFF, a nonpartisan group that conducts health policy research.

(More than three-quarters of those Republican ACA users identify as “MAGA” Republicans. Those MAGA Republicans represent 31% of ACA purchasers overall.)

Meanwhile, 35% of Democrats get their health insurance through the ACA, KFF found.

Republicans in the House of Representatives passed a multitrillion-dollar tax and spending package in May estimated to cut about $900 billion from health programs like Medicaid and the ACA, which is also known as Obamacare.

Senate Republicans are now considering the measure, which contains many of President Donald Trump’s domestic policy priorities. Republicans are trying to pass the megabill by the Fourth of July.

If the GOP enacts the legislation as written and doesn’t extend tax credits that lower monthly ACA health premiums, about 15 million people would lose health insurance, according to the Congressional Budget Office.

“A large constituency of Republicans using the programs are potentially facing cuts,” said Audrey Kearney, a senior survey analyst for KFF’s public opinion and survey research program.

The survey was conducted May 5 to 26 among a nationally representative sample of 2,539 U.S. adults, including 247 who have purchased their own health coverage.

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Republicans more likely to be self-employed

Many red-leaning states didn’t expand Medicaid

The Affordable Care Act also expanded Medicaid coverage to more households.

However, 10 states haven’t adopted the expansion: Alabama, Florida, Georgia, Kansas, Mississippi, South Carolina, Tennessee, Texas, Wisconsin and Wyoming. All voted for Trump in the 2024 presidential election.

Republicans are “more likely to live in nonexpansion states,” John Graves, a professor of health policy and medicine at Vanderbilt University School of Medicine, wrote in an e-mail.

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Here’s why this matters for ACA enrollment: “In the non-expansion states, there’s a wider population eligible for the tax credits,” said Carolyn McClanahan, a physician and certified financial planner based in Jacksonville, Florida. She’s a member of the CNBC Financial Advisor Council.

In states that expanded Medicaid, nearly all adults with incomes up to 138% of the federal poverty line (about $22,000 for a one-person household in 2025) are eligible for Medicaid.

In states that didn’t expand Medicaid, a broader population is eligible for subsidies to make ACA health plans less expensive, Graves said. The subsidized exchanges are available for people between 100% and 138% of the federal poverty line, among others.

“Given the heavy subsidies in that income range, and large amount of otherwise uninsured people, that would suggest more GOP-identifying people with low incomes would go the (subsidized) exchange route,” Graves wrote.

The Affordable Care Act has been vilified by Republicans since passage during President Barack Obama’s tenure. However, provisions within the law — such as creation of the ACA marketplaces, coverage for those with pre-existing conditions and the ability to stay on parents’ health plan until age 26 — have broad appeal, said KFF’s Kearney.

As of 2023, nearly 1 in 7 U.S. residents had enrolled in an ACA marketplace plan at some point since 2014, the year in which states rolled out marketplace plans, according to a 2024 report from the U.S. Department of the Treasury.

“Our polling going back years has shown that when you ask about favorability of the ACA itself, Republicans view it as pretty unfavorable,” she said. “However, the actual provisions in it are very popular, and are popular among Republicans.”

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