Why refinancing can make sense even when mortgage interest rates are rising

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Should you consider refinancing when interest rates are on the rise?


Important points

  • Refinancing can be a smart financial move if it lowers the cost of borrowing.
  • If you can get a lower interest rate or have an adjustable rate mortgage, now might still be a good time to refinance.

Demand for mortgage refinancing has plummeted in recent months, and there’s a simple reason for that. You see, refinancing demand is more affected by changes in interest rates than demand for new mortgages. That’s because current homeowners rarely have to refinance – while most people who buy a home need a mortgage to do so. And interest rates on refinance loans have risen rapidly in 2022, especially compared to record lows in 2021 as the pandemic raged.

But despite the fact that refinancing rates have risen, refinancing is still a smart move in certain circumstances. Here are three times when you might want to consider getting a new home loan, even if you can’t do it at last year’s lows.

1. If you can still get a lower rate than what you are currently paying

Refinancing would also make sense if interest rates are rising if the rate you would be paying on your new loan is lower than what you are currently paying.

It’s still possible for many people to lower their interest rates through refinancing, even if national average rates are well above where they were in 2021. That’s because interest rates, while recovering from recent record lows, are still well below historical averages.

If you have an older loan that you haven’t refinanced recently, it’s worth checking to see if you might qualify for a loan now could reduce your financing costs.

2. If your financial situation has improved

You may also be able to get a lower interest rate if your financial situation has improved since you took out your original loan. For example, if you had poor credit or high debt when you got your loan, you might have had to pay a pretty high rate of interest—even if you took out the loan at a good time. If your situation has improved since then, you may now qualify for a lower rate.

Since many lenders offer refinancing offers free of charge and without a hard loan application, it can be worth checking interest rates — especially if you took out a loan a long time ago or your financial situation has improved.

3. If you are worried about price adjustment soon

Another situation where refinancing might make sense despite rising interest rates is if you currently have an adjustable rate mortgage (ARM). ARMs have a fixed interest rate for a limited time, but eventually they start to move in tandem with a financial index, meaning your interest rate could rise.

With most experts predicting that interest rates will continue to rise for a while, this may be your last chance to switch to a fixed-rate loan and hold on to current rates before mortgages get even more expensive.

The bottom line is that rising rates don’t mean that refinancing should be off the table for everyone. Consider your personal circumstances and see which plans you could qualify for now. Then compare them to what you’re currently paying to decide if taking out a new home loan is a good financial move for you.

A historic opportunity to potentially save thousands on your mortgage

Interest rates are unlikely to remain at multi-decade lows much longer. That’s why it’s crucial to take action today, whether you’re refinancing and cutting your mortgage payment or ready to pull the trigger on a new home purchase.

The Ascent’s in-house mortgage expert recommends this company find a low interest rate – and in fact he’s used them to refect himself (twice!). Click here to learn more and see your plan. While this doesn’t influence our opinions about products, we do receive compensation from partners whose listings appear here. We are always by your side. Here is The Ascent’s full advertiser disclosure.

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