Is It Too Late to Refinance Now That Mortgage Rates Are Soaring?

Don't assume you've missed the boat.

From mid-2020 through the start of 2022, mortgage loan applicants enjoyed competitive borrowing rates. But mortgage rates have risen sharply since January, and that extends to refinance rates. Right now, it makes more sense for many homeowners to stick with their current mortgages rather than get new ones.

But that doesn't mean refinancing doesn't make sense for anyone. Here are two scenarios in which a refinance could still pay off, even with much higher rates.

1. Your credit score has improved substantially

The higher your credit score, the more likely you are to snag an affordable mortgage rate. It may be that when you applied for a mortgage, your credit score wasn't in the best shape. But if it's risen a lot -- say, by 100 points or more -- then reach out to some refinance lenders and see what borrowing rates you're eligible for.

The original interest rate you got on your mortgage may be substantially higher than the rate you can snag today. And in that case, refinancing could work to your advantage.

2. You want to take cash out of your home

These days, home values are up on a national level. That's been a point of frustration for buyers. But for sellers, it spells opportunity.

Even if you're not looking to sell your home, you can take advantage of having more equity in it by doing a cash-out refinance. With a regular refinance, you borrow the exact sum you owe on your existing mortgage. With a cash-out refinance, you borrow more than your remaining mortgage balance, and you can use that extra money for any purpose.

While it's true that borrowing rates have climbed a lot over the past five months, the flip-side is that home equity levels are very high right now. And so despite getting stuck with a higher refinance rate, if you're looking to do a cash-out refinance, it could make sense to move forward now.

Will refinancing get even more expensive?

Because the Federal Reserve still has rate hikes planned for this year, there's a good chance mortgage rates, including refinance rates, will tick upward. So if you're interested in refinancing your mortgage, the time to act is now. The longer you wait, the more you risk borrowing rates rising.

That said, you definitely don't want to rush into a mortgage refinance. Make calls to several lenders to see what offers they come back with. Shopping around could help you eke out some savings at a time when it's gotten more expensive to swap an existing home loan for a new one.

And remember -- when you refinance a mortgage, you're on the hook for closing costs, too. So when you do your rate shopping, ask about those fees to see which offer makes the most financial sense as a whole.