Make Money From Home

3 Reasons You May Want to Refinance Even Though Mortgage Rates are Above 5% – The Motley Fool

Image source: Getty Images

Interest rates are up, but that doesn’t mean refinancing never…….

Image source: Getty Images

Interest rates are up, but that doesn’t mean refinancing never makes sense.

Key points

  • Mortgage refinance rates currently top 5%.
  • It can still pay to refinance even though rates are up considerably from recent years.
  • Whether refinancing makes sense for you right now depends on the specifics of your situation.

Refinancing a home loan was very popular during the heart of the pandemic because interest rates fell to recent record lows. But things have changed now, and it now costs much more to secure a refinance loan. In fact, as of July 24, 2022, the average refinance rate on a 30-year fixed-rate loan came in at 5.769%.

With rates well above 5%, many people who obtained a mortgage over the past few years will find that securing a new loan would now cost more than their existing debt. Under those circumstances, refinancing usually does not make sense since the goal is to make loan payoff cheaper. But, even with rates so high, here are three primary reasons why refinancing may sometimes make sense anyway.

1. Your ARM is going to start adjusting

There are two kinds of mortgage loans: Fixed-rate and adjustable-rate loans. Unlike fixed-rate loans, ARMs have rates that are tied to a financial index and they can begin adjusting after an initial startup period. This is where the rate buyers are first offered is locked in. And if you have an ARM, for example, your rate could start moving with the financial index after three years, or five years, or seven years, or 10 years depending on the terms of the loan.

Once your ARM begins adjusting, there’s a risk that your rates will go up — and keep rising over time. If you don’t want to face the adjustment of your rate each year, and potentially see your payment go up each time that happens, you may want to refinance if the initial period where your loan was locked in is soon coming to an end.

If you refinance into a fixed-rate loan, the new mortgage you get may be higher than the rate on your ARM currently — especially now, when rates are above 5%. But it may be better to lock in at today’s current rate rather than take the chance of your mortgage getting more expensive every single time it adjusts over the coming years.

2. You need to get cash out of your home

Refinancing could also make …….


Leave a Reply

Your email address will not be published.