64% of Homeowners Are Unlikely to Refinance in 2022. Should You?
- Rising mortgage rates make refinancing less attractive this year.
- If you're looking to tap your home equity, refinancing could be a wise move.
Refinancing could be a challenge this year, but it could also make sense.
When mortgage rates started dropping to record lows in mid-2020, many homeowners rushed to refinance. Doing so made sense, because by locking in lower interest rates, they were able to shrink their monthly mortgage payments and free up cash for other things.
This year, however, mortgage rates are on the rise, and that extends to refinance rates. In fact, the rate you'll pay on a refinance will generally be a bit higher than the rate you'll pay for a new purchase mortgage.
Not surprisingly, 64% of homeowners are unlikely to refinance this year, according to recent ServiceLink data. But does that mean you should write off the idea?
Why it could still pay to refinance
Even though refinance rates are up right now, there are a couple of scenarios where swapping your existing mortgage for a new one could still make sense. First, if you happen to have a high interest rate on your mortgage, you might get a lower rate today, even with rates being up. This may be the case if you didn't have such great credit when you first bought a home, but your credit has since improved substantially.
It could also pay to refinance this year if you want to take advantage of the equity you have in your home. Since home values are up on a national scale, homeowners today are sitting on record levels of equity. And a cash-out refinance lets you use that equity to your benefit.
With a cash-out refinance, you borrow more than your remaining mortgage balance. The excess amount you borrow is money you can use for any purpose. You can take that cash and use it to renovate your home, make repairs, or even go on vacation if that's the route you choose to take.
Once home values start to drop, equity levels are apt to follow suit. And so the benefit of refinancing this year is getting to do so at a time when you have more equity to tap.
How to go about refinancing
If you're interested in refinancing your mortgage, you should use a similar approach to getting a mortgage for buying a home, and that's to shop around for different offers. There's no such thing as a universal refinance rate. Rather, each lender will give you its own rate offer based on factors like your credit score and income. It's important to compare offers and pursue the best deal.
In doing so, however, don't forget about closing costs, which are the fees you'll be charged to finalize your refinance. Just as buyers pay closing costs for a mortgage used to purchase a home, closing costs also come into play with refinancing.
Perhaps a given lender has the best interest rate to offer on a refinance but wants to charge much higher closing costs than the other lenders you talk to. That's why you'll really need to get all the right information before deciding which lender to work with.
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