Mortgage Refinance Volume Plunges 80% -- but Could You Benefit From a Refinance Today?

While it's not a great time to refinance, it could pay off for some homeowners.

From mid-2020 through the start of the current year, home buyers and existing homeowners were able to benefit from competitive mortgage rates. Those signing purchase contracts got more buying power, and those looking to refinance got the option to reap savings on their monthly housing payments.

But unfortunately, over the past six months, mortgage rates have risen steadily. And at this point, it's hard to make the case for refinancing a home loan. In fact, mortgage refinance applications are now down 80% compared to the numbers seen a year ago, according to the Mortgage Bankers Association. By contrast, purchase mortgage volume is only down 18%.

If you missed the boat on refinancing when borrowing rates were low, you might assume that it won't pay to move forward with a refinance today. And that's generally true. But there is one scenario where it could still pay to refinance.

Do you have a need for money?

These days, homeowners are sitting on record levels of equity thanks to property values being high. And that's equity you can borrow against. And so while a standard refinance may not make much financial sense these days, a cash-out refinance could be a different story.

With a cash-out refinance, you borrow more than what you owe on your existing mortgage, and that excess cash is money you can use for any purpose. Want to renovate your home or finally replace your failing roof? A cash-out refinance could make that possible.

But to be clear, you can take the money you get from a cash-out refinance and use it on something having absolutely nothing to do with your home. You can pay off a credit card balance you've been carrying for years, start a small business, or even go on a luxury vacation if that's a route you want to take (though that's probably not the best choice).

Now, it's true you'll pay more interest on a new mortgage today than you would've a year ago. But if you're intent on borrowing money no matter what, then a cash-out refinance may be your most affordable option. While there are other competitive loan options to look at, like a personal loan or home equity loan, you might still snag a lower interest rate on a cash-out refinance, making that your most sensible move.

Should you look at a cash-out refinance?

If you have great credit and a lot of equity in your home, then a cash-out refinance could be a good solution for your borrowing needs. But if you don't have a lot of equity and your credit needs work, then you may want to hold off on refinancing and taking cash out of your home.

The higher your credit score when you apply for a new mortgage, the more affordable a rate you're likely to snag on the sum you borrow. And so it pays to boost your credit to reap the maximum amount of savings -- especially at a time when refinancing has gotten more expensive for borrowers across the board.