Should you refinance your mortgage with dropping rates? A financial planner suggests it could be beneficial.

Recent drops in mortgage rates have caused uncertainty among homeowners about whether to refinance their mortgages.

Refinancing could save some borrowers money, but it depends on their current rates, loan term, and the costs of obtaining a new loan.

The average annual percentage rate for 30-year fixed-rate mortgages has decreased to 6.52% as of Tuesday, a 1% drop from their peak of 7.53% in April, amid concerns of a slowing economy.

According to Dean Tsantes, a certified financial planner in Virginia, refinancing your rate to be at least 1% lower than your current rate could be beneficial. A rate reduction of 1% or 2% typically results in a significant reduction in monthly payments, typically amounting to a hundred bucks or more on a $300,000 loan.

Refinancing with a rate difference of 1% may not always be the best option, but it's worth considering if it could save you money.

How to know if refinancing is right for you

There are a couple of important factors to consider before refinancing.

The break-even point for a $300,000 mortgage is approximately $5,000, which is the time it takes for the savings from a lower rate to offset the upfront costs of closing the mortgage.

If you plan to remain in your home for at least two years, a break-even point is a widely accepted guideline.

Financial wellness leads to happiness, wealth, and financial security.

To determine the total interest paid on a loan, you can use a mortgage refinancing calculator. Extending the loan term can lower monthly costs, but it's important to consider the additional interest you'll pay before making a decision.

If you're considering refinancing your mortgage, it could be a wise decision if the new mortgage rates offer a significant reduction in your monthly payments, especially if your budget is already tight. Additionally, extending the term of the loan may be a suitable option if you feel comfortable with the new terms, according to Hazel Secco, a CFP in New Jersey.

When refinancing, it's crucial to examine the terms of the new agreement to avoid any unexpected surprises, such as prepayment penalties, additional fees, or modifications to the amortization schedule for your payments.

You could wait for mortgage rates to drop further

Should you refinance now? It depends on whether you believe major forecasts predicting further rate decreases, with mortgage APRs approaching 6% in 2025.

Mortgage experts and financial planners who were interviewed by CNBC have differing opinions on whether it is advantageous to refinance at the present time, as interest rates may potentially decrease further.

"Secco emphasizes that he is a planner, not a psychic, and does not attempt to predict market timing. He advises clients not to let current rates discourage them from purchasing a home or making significant decisions, as rates should not be the primary concern."

According to Sarah Alvarez, vice president at William Raveis Mortgage, "a little bit of patience can go a long way, with rates expected to decline for the next 24 months."

While waiting longer may result in more savings, there is no assurance that rates will decrease.

To stop worrying about money, enroll in CNBC's online course, Financial Wellness: Be Happier, Wealthier & More Financially Secure. We'll teach you the psychology of money, stress management, and healthy financial habits. Plus, use code EARLYBIRD for a 30% discount through September 2, 2024. Start today!

Sign up for CNBC Make It's newsletter to receive expert advice on work, money, and life.