Is now a good time to refinance your mortgage?

Even with rates higher than they have been 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 who want 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 worth it.

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, much to the surprise of many 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 shop, while others may still benefit from doing so.

If you’re considering refinancing your mortgage, start by answering a few quick questions to find out what you qualify for.

Is now a good time to refinance your mortgage?

Even with rates at 6-7%, some homeowners may still benefit from refinancing. This applies in particular to homeowners who fall into one or more of the following categories:

Homeowners who can get a lower interest rate

Not all homeowners started out with a low interest rate. There are still borrowers out there with rates above what is currently available on the market. For those homeowners, refinancing may still be worth pursuing.

Refinancing is generally considered beneficial if you can drop your existing interest rate a full percentage point lower than what you have today. However, 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 the loan

Home loan refinancing is perhaps best known as a means of saving money. But it can also be a valuable tool for reducing the length of your mortgage. For example, if you initially took out a 30-year mortgage and have 23 years left, you might consider refinancing to a 15-year term. Not only will this free up cash eight years earlier than expected, but you’ll also save money in the long run as you won’t be paying the interest that was spread over the extra years.

Just be aware that a consolidated loan will result in higher payments as you are essentially reducing the time frame you have to pay. But if you recently got into a lump sum — or are simply tired of having to deal with a nagging mortgage payment every month — it may still be worth refinancing to a shorter time frame.

Homeowners who need cash now

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

You still have to repay that amount, but you may get more favorable terms during the application process than you had when you took out the mortgage. But it can be worth it to have cash available to pay off debt, make household repairs or use for something else that is badly needed.

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

The bottom line

Yes, mortgage refinancing rates gave many owners a historic opportunity in 2020. But interest rates haven’t jumped so much that it’s not worth refinancing either. For homeowners who can still lower the price or for those who want to shorten the term, a refinance can still be worth it. Likewise, those in need of cash now may find a cash-out refinance useful.

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