February 3, 2023
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Even with rates being higher than they were in recent years, some homeowners may still benefit from refinancing.

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When it comes to financial decisions, timing can be critical. This is especially true for homeowners looking to refinance. If you wait too long or act too quickly it could potentially cost you thousands of dollars. The timing has to be just right to make it worthwhile.

Many homeowners took advantage of the timing in 2020 during the height of the pandemic, when interest rates for a refinance hovered in the 2% range. Even with closing costs added to the equation, it made sense for many borrowers to refinance and save money.

Since then, however, mortgage rates have increased exponentially, leading many to wonder if now is still a good time to refinance. As with many financial considerations, however, the answer to this question is specific to the individual. For many homeowners, rates in the 6% range may not be enough of an incentive to act while others may still benefit from doing so.

If you’re considering refinancing your mortgage then start by answering a few quick questions to determine what you’re eligible for.

Is now a good time to refinance your mortgage?

Even with rates being in the 6-7% range, some homeowners may still benefit from refinancing. This is particularly true for homeowners who fall into one or more of the following categories:

Homeowners who can get a lower interest rate

Not every homeowner started off by getting a low interest rate. There are still borrowers out there with rates above what’s currently available on the market. For those homeowners, refinancing may still be worth pursuing.

Refinancing is generally considered advantageous if you can drop your existing rate a full percentage point lower than what you currently have. But, depending on your personal situation, even half a percentage point may be enough. It really depends on what you have now and what you can secure. You can easily see what you’re eligible for now or you can use the calculator below to crunch the numbers.

Homeowners who want to reduce the length of their loan

Mortgage refinancing is perhaps best known as a vehicle to save money. But it can also be a valuable tool to reduce the length of your mortgage. For example, if you initially took out a 30-year mortgage and have 23 years left to go you may consider refinancing to a 15-year term. Not only will this free up cash eight years earlier than anticipated, but you’ll also save money over the long term as you won’t pay the interest that was spread out over those additional years.

Just note that a consolidated loan will result in higher payments as you’re essentially reducing the time frame you had to pay. But if you recently came into a lump sum of money – or are simply tired of having to deal with a nagging mortgage payment each month – then refinancing to a shorter time frame may still be worthwhile.

Homeowners who need cash now

While not considered a traditional mortgage refinancing, a cash-out refinance may be something some borrowers want to investigate. Here’s how it works: Simply take out a new mortgage loan for an amount larger than what you currently owe to the lender. So, if you owe $100,000 and need $50,000 cash you’d take out $150,000 (or slightly more if you want to pay closing costs with it, too). From there you pay the old loan with the new loan amount and pocket the difference as cash for yourself.

You’ll still have to pay that amount back, but you may get more favorable terms during the application process than you initially had when you first took out the mortgage loan. But having the cash available to pay off debt, make household repairs or use for anything else that’s urgently needed may be worth it.

Answer a few questions here now to determine if cash-out refinancing makes sense for you.

The bottom line

Yes, mortgage refinancing rates offered many owners a historic opportunity in 2020. But rates haven’t jumped so much that it’s not worth refinancing either. For homeowners who can still lower their rate or for those who want to cut their term length, a refinance may still be worth it. Similarly, those who need cash now may find a cash-out refinance to be helpful.

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