- Mortgage rates have risen steadily over the past few months.
- While refinance rates tend to be even higher than purchase mortgage rates, it could still pay to swap your existing mortgage for a new one.
Refinancing has gotten more expensive, but it could still pay to go that route.
There's a reason so many homeowners rushed to refinance their mortgages from mid-2020 through the latter part of 2021. During that time frame, mortgage rates fell to extremely competitive levels, so it made sense to jump on the opportunity to lock in a lower rate on a home loan.
But this year, mortgage rates seem to be going nowhere but up. As of this writing, the average 30-year mortgage is sitting at over 5.1%. And since refinance rates tend to be a bit higher than the rates you'll snag for a purchase mortgage, you might get stuck with an even higher borrowing rate if you go the refinance route.
In spite of that, there are some scenarios where refinancing still makes sense. If these apply to you, you may want to move forward with a refinance application.
1. Your monthly payments have gotten too expensive
Maybe you signed a 15-year mortgage a few years ago thinking it would be nice to save money on interest and get your home paid off sooner. But if those monthly payments are too high for your budget, it could pay to swap that 15-year loan for a 30-year loan. Extending your repayment period could result in lower monthly payments, making your housing costs easier to manage.
These days, inflation is causing living costs across the board to soar. And so slashing your mortgage payments could mean the difference between being able to make ends meet versus falling behind on essential bills.
2. You want to take cash out of your home
Because home values are so high these days, property owners are sitting on record levels of equity. If you want to take advantage of that by borrowing against your home equity, it could pay to do a cash-out refinance. This option allows you to borrow more than your remaining mortgage balance and use the extra money for any purpose.
If home values start to fall, property owners will be left with less equity to tap. And so you may want to jump on that opportunity now, while you can.
3. You can still snag a lower rate due to having a higher one
Maybe your credit score was poor when you applied for a mortgage, and so you got stuck with a higher borrowing rate on your home loan. If your credit score has since improved tremendously, you may be able to lock in a lower interest rate on your mortgage by refinancing -- even with rates being up right now. And a lower interest rate could result in a more affordable home loan payment.
What's the right call?
A lot of homeowners who didn't refinance their mortgages from mid-2020 through late 2021 may have missed that boat. But that's not the case universally. Even though refinancing won't make sense for everyone right now, depending on your circumstances, it could still be a wise move for you. It pays to shop around with different lenders to see what rates are available if you're thinking about refinancing.
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