Don’t assume refinancing won’t pay off.
- Mortgage refinance applications are down 83% from a year ago.
- While it may seem like a bad time to refinance, it could be a good time for you.
When mortgage rates plunged to record lows during the second half of 2020, many homeowners rushed to swap their existing loans for new ones. But over the past few months, mortgage refinance demand has declined substantially. And for the week ending July 23, mortgage refinance volume was 83% lower than it was during the same time in 2021.
Given the way mortgage rates have been on the rise recently, that’s not shocking. But while refinancing may not have the same appeal these days as it did during the summer of 2020, or even the summer of 2021, some homeowners could still benefit from going that route.
You might still manage to reap savings
As of this writing, the average 30-year refinance rate is a little over 5.6%. When we compare today’s rates to the rates that were available a year ago, the idea of getting a new mortgage might seem unappealing.
But let’s put today’s refinance rates in perspective. There was a time when the average 30-year refinance rate was 7%, 8%, or higher. In fact, today’s mortgage rates are nowhere near the highest borrowers have ever been subjected to. And it’s important to keep that in perspective when deciding whether a refinance is worth it.
Furthermore, it may have been the case that your credit was poor when you signed your original mortgage, so that the rate you’re paying on it is higher than today’s refinance rates. If so, getting a new home loan could make sense.
Finally, if you signed an adjustable-rate mortgage whose interest rate is now creeping upward, you may want to refinance to a fixed-rate loan. Doing so could help you avoid a scenario where your home keeps getting increasingly difficult to pay for.
You may want to tap your equity
Right now, homeowners across the U.S. are sitting on record levels of equity due to soaring home prices. If you need money, it pays to look into a cash-out refinance. This type of refinance lets you borrow more than your existing mortgage balance, so you get a cash payment you can use for any purpose.
Although you’ll pay more …….