Is now a good time to refinance your mortgage?

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

Many homeowners took advantage of the time during the height of the pandemic in 2020, when refinancing interest rates were in the 2% range. Although with Closing costs Added to the equation, it made sense for many borrowers to refinance and save money.

Since then, however, mortgage rates have risen sharply, surprising many If now is still a good time to refinance. As with many financial considerations, 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 thinking about refinancing your mortgage, start by answering a few quick questions to determine what you qualify for.

Is now a good time to refinance your mortgage?

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

Homeowners who can get lower interest rates

Not every home owner starts out with a low interest rate. There are still borrowers at higher rates than what is currently available in the market. For those homeowners, refinancing may still be worth pursuing.

Refinancing is generally considered advantageous if you can lower your existing rate by a full percentage point over your current rate. 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 qualify 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 for saving money. But it can also be a valuable tool to shorten 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 save money in the long run because you won’t be paying interest spread over those extra years.

Just keep in mind that debt consolidation will result in higher payments because you’re essentially shortening your payment term. But if you’ve recently received a lump sum — or are tired of dealing with a pesky mortgage payment every month — refinancing for a shorter time frame may still be worthwhile.

Homeowners need cash now

Although not considered a traditional mortgage refinance, a Cash-out refinancing An alternative may be some borrowers want to investigate. Here’s how it works: Simply take out a new mortgage loan for an amount greater than what you currently owe the lender. So, if you owe $100,000 and need $50,000 in cash, you’ll end up with $150,000 (or a bit more if you include closing costs). From there you pay off 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 than you did during the application process when you first took out a mortgage loan. But cash may be available to pay off debt, make household repairs, or use for something else that is urgently needed.

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

Bottom line

Yes, mortgage refinance rates have given many owners a historic opportunity in 2020. But rates haven’t risen so much that it’s not even worth refinancing. A refinance may still be worth it for homeowners who can still lower their rate or who want to reduce the length of their term. Likewise, those who need cash now may find a cash-out refinance to be helpful.