Here's When You Should Refinance Even if You Can't Get a Lower Rate

by Maurie Backman | Updated July 19, 2021 - First published on April 27, 2021

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Sometimes, it pays to get a new home loan even if the interest savings aren't there.

Refinancing your mortgage allows you to swap your existing home loan for a new one with more favorable terms. Usually, that means lowering the interest rate on your loan.

But what if you can't get a lower rate? If your credit score is poor, you may not qualify for a better interest rate than what you're paying at present. Similarly, if you already have a very competitive interest rate, you may find that a refinance lender isn't able to do much better.

Now you might assume that if you can't slash your mortgage's interest rate, then there's no sense in refinancing. But actually, here are two scenarios where it pays to refinance, even if your rate stays the same or even increases.

1. You're having trouble keeping up with a 15-year loan

The benefit of getting a 15-year mortgage is spending less money on interest throughout your repayment period than you would with a longer loan term. Plus, a 15-year loan lets you pay off your mortgage sooner.

The problem with a 15-year mortgage, however, is that your monthly payments will be much higher than they would with a 20- or 30-year loan. And if you're having a hard time keeping up with those payments, then refinancing your mortgage could be a smart idea.

This is true even if you don't lower your loan's interest rate in the process. Swapping a 15-year loan for a 30-year loan will generally shrink your payments because you're paying off your home in double the time, even if the interest rate you get on your new loan is higher.

For more information, look at the differences between a 15- vs. 30-year mortgage for help understanding which one is right for you.

2. You want to take cash out of your home

Equity is the portion of your home you own outright. If you have a nice amount of equity built up, then a cash-out refinance will allow you to get a new home loan worth more than your remaining mortgage balance. And that, in turn, will give you the option to get an affordable loan you can use for any purpose.

Say you owe $150,000 on your mortgage but your home is worth $300,000, and you want to borrow $30,000 to start a business. If you do a cash-out refinance for $180,000, you'd get a check for the $30,000 above your remaining mortgage balance, which you'd then be free to use for that purpose.

Even if you don't snag that refinance at a lower interest rate, a cash-out refinance may be a far more affordable option than a home equity loan, home equity line of credit (HELOC), a personal loan, or a small business loan. This is especially true today, since refinance rates are pretty competitive across the board.

There's nothing wrong with trying to lower your mortgage's interest rate with a refinance. But that's not the only benefit of getting a new home loan. That's why refinancing could still be a smart move even if you can't lower your interest rate. So don't discount it until you really get a chance to crunch some numbers and think things through.

And if refinancing is the right move for you, make sure to read the nine steps to refinance your mortgage to help guide you.

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