Is It Definitely Too Late to Refinance Your Mortgage?

Borrowing costs more these days, but you may be able to reap some savings.

There's a reason so many mortgage borrowers rushed to refinance their home loans from mid-2020 through the latter part of 2021. During the second half of 2020, refinance rates plunged to record lows and remained competitive throughout the following year. That gave homeowners a chance to slash their monthly mortgage payments and enjoy a nice amount of savings.

But mortgage rates, including refinance rates, have risen sharply since the start of 2022. And at this point, rates aren't nearly as competitive as they were last year. That means that refinancing will no longer pay off for a lot of mortgage borrowers. But you may be the exception to the rule.

When a refinance could still make sense

The goal of refinancing is generally to lower the interest rate on your mortgage and reduce your monthly housing costs in the process. But there are other reasons to refinance, and one might be to take cash out of your home.

Right now, homeowners across the U.S. are sitting on record levels of equity. But that may not always be the case. Once home values start to come down, equity levels are apt to drop. So if you want to tap your home equity right now, it could pay to do a cash-out refinance.

A cash-out refinance involves borrowing more than your existing mortgage balance in the course of getting a new home loan. You may not manage to lower the interest rate on your mortgage by refinancing today. But if you're sitting on a few hundred thousand dollars' worth of equity that you want to access in cash form, then it could pay to do a cash-out refinance despite today's higher borrowing rates.

Remember, while you might pay more to refinance a mortgage right now, you'll generally pay even more than that to borrow via a personal loan or credit card balance. And so if you have a need for money and want to tap your home equity, a cash-out refinance could be the way to go.

Some homeowners might reap savings

Because mortgage rates are the highest they've been in over a decade, your savings opportunities may be limited if you refinance now. But if your credit score was poor when you first got a mortgage, you may have gotten stuck with an expensive borrowing rate. And if your credit score has since improved tremendously, you might actually manage to eke out some savings by refinancing your mortgage.

Be sure to shop around

If you decide that refinancing your mortgage is the right way to go, make a point to shop around for rate quotes from different lenders. Doing that legwork could help you squeeze out some additional savings in the course of trading in your mortgage for another one.

A good place to start your rate shopping spree is your current lender -- but don't assume your existing lender will give you the best deal. There may be a better offer out there, so it's a good idea to gather a handful of quotes before moving forward.