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Mortgage rates dropped after you bought: your options

If rates fell after you bought a home with a fixed-rate loan, refinancing is the usual way to get the lower rate. It pays when the monthly savings earn back the closing costs before you sell or refinance again, and you have to qualify for the new loan. Some lenders also let you request a rate reduction on your existing loan, while recasting lowers your payment without changing the rate.

What happens if rates drop after I buy?

On a standard fixed-rate loan, your rate stays the same unless you act. The sections below cover what you can do.

Does my mortgage rate go down automatically?

Not on a standard fixed-rate loan. An adjustable-rate loan’s rate can fall at scheduled adjustments, and it can also rise. Marian’s rate does: after an initial fixed period, when market rates fall by a defined amount, the rate resets lower automatically, down to a floor. Marian is pre-launch and not lending in any state.

Refinancing

Refinancing replaces your loan with a new one at today’s rate. Freddie Mac describes it as essentially applying for a new home loan, so the lender checks your credit again, and the new loan comes with its own closing costs.

Whether it pays comes down to the break-even point: divide the total cost of the refinance by the monthly savings to see how many months it takes to earn the cost back. If you might move or refinance again before then, it probably doesn’t pay. Freddie Mac notes that this check doesn’t work for a cash-out refinance or for a shorter term, and that starting a new full-length term can mean paying more interest over the life of the loan.

A “no-closing-cost” refinance still has costs. According to the CFPB, the lender either charges a higher rate and gives you a credit, or adds the costs to the loan amount.

Recasting

A recast lowers your monthly payment, not your rate. You pay a lump sum toward the principal, and the servicer recalculates the payment over the remaining term at the same rate. Not every servicer offers recasts, and some charge a fee, so ask yours.

Loan modification

A loan modification changes the terms of your existing loan to bring the payment down to an amount you can afford, for example by lowering the rate or extending the term. The CFPB treats it as a form of loss mitigation, so it’s usually for borrowers having trouble making payments, and it isn’t a way to pick up a lower market rate.

Lender rate-reduction programs

Some lenders, often credit unions, let you request a lower rate on your existing loan after market rates have fallen, without a full refinance. Fees and eligibility vary by lender, and many programs limit how often you can use one. Check whether your lender has a program and read its terms before you rely on it.

Assumable loans

An assumable loan helps only if you’re buying. Most loans backed by the FHA, VA or USDA can be assumed, which means the buyer takes over the seller’s remaining balance on the original terms. The buyer has to cover any gap between the price and that balance. It doesn’t change the rate on a loan you already have.

For your next mortgage: a down-only design

If you’re shopping for a future loan, a down-only mortgage is designed so the rate resets lower automatically when market rates fall by a defined amount, down to a floor, and never rises. Read what a down-only mortgage is and how it compares with refinancing and other options. Marian Mortgage is a planned example of this kind of loan; it is pre-launch and not yet lending. If you haven’t bought yet, see should you buy now or wait?

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