If you signed your mortgage in 2020 or 2021, then you probably locked in a pretty great rate on that loan. But if you signed your mortgage in late 2022 or 2023, it was probably a very different story.

If you’re struggling to keep up with your mortgage payments, relief may soon be in sight. Mortgage rates are expected to fall pretty soon. Once that happens, you may be in a position to refinance your mortgage and snag a lower rate in the process. That could lower your monthly payments and help you better manage the costs of homeownership.

But while mortgage rates are likely to drop before the end of 2024, waiting until 2025 to refinance may be a better bet. Here’s why.

Sitting tight could leave you paying less

The Federal Reserve is expected to lower its benchmark interest rate at its upcoming meeting, which is set to take place on Sept. 17 and 18. And that rate cut should be one of many.

The Fed raised interest rates in 2022 and 2023 to combat rampant inflation. Now that the pace of inflation has cooled, the Fed has signaled that it’s looking to lower interest rates to align with current economic conditions.

Once the Fed begins its rate cuts, borrowing should get less expensive for consumers across the board. But for mortgage holders, those rate cuts should lead to better refinancing opportunities.

However, you may not want to refinance your mortgage at the end of September, or at any point in 2024. The reason? Just as the Fed raised interest rates gradually in 2022 and 2023, so too is it expected to lower interest rates gradually. But if you wait until 2025 to refinance, you might end up with a much better deal.

Now you may be thinking, “Why don’t I just refinance this fall, and then do it again in the winter or spring?”

The reason is that each time you refinance a mortgage, you pay closing costs that commonly amount to 2% to 5% of your loan amount. Because of this, refinancing isn’t something you want to do often. So if you’re willing to wait a few extra months, you might end up with a substantially lower interest rate on your mortgage, as opposed to a modestly lower interest rate.

Set yourself up for a successful refinance

Whether you decide to refinance in late 2024 or beyond, one thing it pays to do immediately is work on boosting your credit score. The higher it is, the more competitive an interest rate you’re likely to get.

You can raise your credit score by paying off credit card balances and correcting errors on your credit report, if any exist. Paying bills on time is also instrumental in helping raise a credit score, but it takes time for your payment history to improve.

You may also want to avoid applying for new loans or lines of credit in the coming months if you know a refinance is on the horizon. The less debt you have relative to your income, the more likely you are to get approved for a mortgage refinance.

It’s exciting to think about lowering the interest rate on your mortgage and seeing your monthly payments drop. But sitting tight beyond 2024 could lead to a much more favorable refinance rate — and a lot more savings for you.