Demand for mortgage refinancing is up — is now the right time for you?

As interest rates continue to drop, more homeowners are trying to refinance their mortgages. In the last week of November, applications for mortgage refinancing increased by 14% from the week prior, according to the Mortgage Banker Association's Refinance Index.

Compared to the same week last year, they were up 10%.

It's the first time since 2021 that the number of applications has been on the rise for two weeks straight, according to the association. While overall application levels are still quite low, the recent bump "could signal that 2023 was the low point in this cycle for refinance activity," Mortgage Broker Association's deputy chief economist Joel Kan said in a statement.

The pickup may be linked to the decline in mortgage rates for the sixth week in a row. As of Dec. 7, the average interest rate for a 30-year mortgage is 7.03, down nearly 10% from the end of October, according to federally-insured mortgage provider Freddie Mac.

Before you fill out an application, consider why you want to refinance. Are you looking for a more favorable rate after taking out a mortgage when rates hit a peak this summer? Are you looking to cash in on your home's value increase to pay off high-interest credit card debt? Are you looking to make a big purchase?

If you're refinancing to get a better rate

If you're eager to refinance to get a better rate, you may want to wait. Mortgage rates are expected to continue dropping into 2024, according to Fannie Mae, hitting an average of 6.8% by the fourth quarter and even more in 2025.

If you're refinancing to make a big purchase

If you need funds for for a wedding, a child's college tuition or some other major expense, it's worth asking yourself if you can wait a bit longer for rates to come down further.

If you're refinancing to pay off high-interest debt

If you have high-interest credit card debt, it may make sense to refinance even though rates are still relatively high. Talk to a financial advisor before you do, though, to get a better perspective on your personal situation.

You can usually refinance at any point after you take out a mortgage, but here are some exceptions:

• For a cash-out refinance, meaning you intend to take out more than the balance owed, you must have owned the home for at least 12 months.
  
• To refinance an FHA or VA loan, you need to make six monthly payments and have owned the home for 210 days before refinancing.
  
• To refinance a USDA loan, you must have paid your mortgage on time for 180 days or 12 months, depending on the type of refinance it is.

Refinancing your mortgage isn't free. Freddie Mac suggests putting about $5,000 aside for fees if you plan to refinance.

You can always refinance with your current mortgage lender or shop around. Rocket Mortgage is among CNBC Select's top picks for refinancing. It provides 8 to 29 year fixed-rate terms and requires only a 620 credit score for conventional refinancing, though it does not have HELOCs or USDA loans available.

You can get pre-qualified in minutes online and cash in on the full value of your house. Rocket has an app that makes your mortgage easy to manage as well.

SoFi is another good option for refinancing your mortgage, with 10 to 30 fixed-rate terms, and a 620 credit score requirement. It provides mortgage loan officers free of charge and it will forego $500 in refinancing fees if you have a personal loan or student loan with SoFi or $50,000 in a SoFi Invest account.

SoFi does not offer USDA, VA or FHA loans, however.

As rates begin to fall, demand for mortgage refinancing is increasing. If you're interested in refinancing, it's important to think about why you plan to refinance as well as the potential benefits and pitfalls to doing so.

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