Rates Are Rising, but Here Are 5 Reasons a Refinance May Still Be Smart
Mortgage rates have been rising for the past few weeks, and if you’re a homeowner, it could have you concerned.
Did you miss your window for a refinance? Is there still a chance to save?
The truth is there’s no hard-and-fast answer here. In some cases, refinancing may no longer be beneficial (it could even cost you in the long run!). In others, it could very well be a great time to refinance that mortgage loan and save some cash.
Are you currently mulling a refinance but are hesitant due to rising mortgage rates? Here are five reasons a refi might be a smart move:
1. Interest rates are still historically low.
Rates may be rising, but historically speaking, they’re still incredibly low. Just take a look at Freddie Mac data for proof. According to the mortgage purchaser, rates were nearly 5% just ten years ago.
Even a small reduction in your interest rate could result in big savings over time, so if you applied for your mortgage loan in one of those higher-rate years, there’s still a chance a refi could save you (especially over time).
Another note: Most experts predict rates to keep rising, so if you’re planning to refinance at some point this year, now might be the time to do it.
2. It could lower your monthly payment.
If you’ve seen your wage cuts or are just struggling financially, a refinance can be a good move to consider. For one, if you’re able to snag a lower interest rate, it could mean a lower payment and less financial stress.
If your rate isn’t so great (or is even the same as your existing one), you could still lower your monthly payment by refinancing into a longer-term loan. Here’s an example: If you currently have $100,000 and 20 years left on your loan, refinancing into a 30-year loan would spread that balance out over more months, thus reducing your monthly payment.
3. It can give you extra cash if you need it.
Another reason to refinance is to tap your home equity. Here’s how that works: You take out a new mortgage slightly higher than your current loan’s balance. That new loan is used to pay off the old one, and you get the difference in cash. You then pay off the new mortgage monthly just as you did before.
It’s called a cash-out refinance and is a good option if you have big costs coming up (college tuition), are facing unexpected expenses (medical bills), or if you’re looking to renovate your home.
4. It could help you pay off your loan sooner.
Refinancing can also be smart if you’re hoping to pay off your loan faster, or if you’ve recently gotten a raise or come into money (via an inheritance, for example). To do this, you’d refinance into a shorter-term mortgage loan — maybe a 15-year or 5/1 ARM. This would result in higher payments, but you’d be able to pay off the loan in a much quicker fashion.
A nice benefit here? A shorter term means less time paying interest. Throw in that interest rates are usually lower on these loans, and the savings can be pretty significant.
5. If you have an adjustable-rate mortgage, it can save you from a rate hike.
Adjustable-rate mortgages can be tempting when you first buy a home since they usually come with the lowest interest rates out of all your options. The only catch? That rate can (and likely will) increase over time, taking your monthly payment up with it.
If you have an adjustable-rate loan and are nearing your rate’s adjustment period, a refinance is definitely something to consider. You can either refinance into a fixed-rate loan and guarantee yourself a consistent interest rate and payment for the long haul, or opt for another adjustable-rate loan in its place. Either way, you get to avoid that rate hike and will hopefully save yourself some money.
The bottom line about rates
Mortgage rates might not be as low as they were a few months ago, but that doesn’t mean refinancing is out of the question. As you can see, many homeowners still stand to benefit from a refinance — as long as it’s timed right and done properly.
Are you thinking about refinancing your mortgage but aren’t sure it’s the right time? Get in touch with an Embrace Home Loans officer in your area today. They’ll walk you through each scenario and break down the potential savings (or costs) a refinance might come with.
Be sure to ask about our Extended Rate Lock program — you may be able to lock in today’s historically low rate for up to 360 days if you qualify!