2 Reasons to Refinance Your Mortgage at Over 6%

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  • It's generally not a great time to refinance right now, due to mortgage rates being high.
  • It could pay to refinance if you're looking to cash out some equity, or if you're still able to lower your existing loan's interest rate.

Mortgage rates have been stuck in the 6% range since the start of 2023 for 30-year loans. And as of May 4, the average 30-year mortgage rate was 6.39%, according to Freddie Mac.

Because mortgages have gotten expensive, you'll generally hear that now's not a great time to refinance. And for many homeowners, that advice is spot-on. But here are a couple of reasons why you may want to refinance your mortgage, even with rates being above 6%.

1. You're paying way more than 6% now

Today's borrowing rates for mortgages seem high because in 2020 and 2021, borrowers got used to record-low rates in the 3% range or below. But historically speaking, borrowing for a home in the 6% range isn't so bad. 

What's more, if you signed your mortgage a number of years back and your credit score wasn't so great at the time, you may have gotten stuck with a mortgage in the mid-7% range, or even 8% or more. So in that case, refinancing to a new mortgage with a rate of, say, 6.39% doesn't seem so terrible. 

2. You want to take cash out of your home

The Federal Reserve has been raising interest rates, so these days, it's expensive to borrow money no matter how you go about it. However, you might snag a lower interest rate on a mortgage refinance than on another loan, like a home equity or personal loan. And so if you need to borrow money and want to take cash out of your home via a cash-out refinance, then it could pay to do so even if it means locking in a new home loan in the mid-6% range.

With a cash-out refinance, you don't just swap your existing mortgage for a new one. Instead, you borrow more than your remaining mortgage balance and get the difference in cash. You can then use that cash any way you see fit.

Right now, you might pay 6.39% on a cash-out refinance for a 30-year mortgage. By contrast, a lot of personal loan lenders are charging between 7% and 9% these days, which is a higher rate than what you'd get by refinancing your mortgage. 

Should you refinance this year?

Let's be clear. For many homeowners, it absolutely does not and will not make sense to refinance a mortgage in 2023 (assuming rates stay where they are today for the rest of the year). This especially holds true given that so many homeowners refinanced their mortgages in 2020 and 2021, and are now sitting on super low rates.

But there tend to be exceptions to every rule. And if one of the above circumstances applies to you, then a mortgage refinance at over 6% interest could still be a savvy move.

That said, given where mortgage rates are today, it's important to go into the refinance process with a great credit score. Doing so increases your chances of getting the most competitive interest rate a given lender has to offer -- even if the baseline is pretty high.

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