Should You Refinance Your Mortgage Now?

As you probably know, the mortgage refinance industry has really been on fire for the past year. Like most homeowners, you’re probably receiving offers right and left. But is this really the best time to refinance your mortgage? Or should you wait for a more beneficial time?

Every situation is different, of course, but the following four factors could mean that now is not the best time for a refinance…

Mortgage interest rates have risen significantly. At the height of the refinance craze, mortgage interest rates fell to an all-time low of 2.65 percent (in January 2021). But these days, the rates have about doubled to 5.5 percent. So if you’re wanting to obtain a historically low interest rate, you missed the boat.

On the other hand, 5.5 percent might be significantly low enough for some homeowners to consider a refinance. Generally speaking, you should consider a refinance deal if you can achieve a rate that is at least .75 percent lower than your current one. The other factors listed below can help you determine whether current rates are low enough for you.

You could end up with a larger monthly payment. The primary goal of refinancing is often to achieve a lower monthly payment. But if you choose to cash out the equity in your home (another common reason for refinancing) at today’s less-than-stellar interest rates, you could end up with a higher payment. And you could probably do better things with that money each month.

You will reset the amortization schedule on the loan. Mortgage loans include more of the interest at the front end of the loan. So the longer you make payments, the more is going to principal and less goes toward interest. But when you refinance, you’re essentially starting a new mortgage, and the amortization schedule resets to Month One. If you’re many years into your mortgage, that could be a costly decision.

Higher home values might not be stable. Home prices are currently very high, but we’ve learned in the past that this is not always a stable situation. If you refinance your home and cash out the equity, you could end up owing more of the property than it is even worth. And if you need to sell at some point in the future, you could be “trapped” in your home (or not make the profit you had hoped for).

As we said, every situation is different. So the above factors don’t mean refinancing is a bad decision for absolutely everyone. But do schedule an appointment with us to discuss your long term financial plan, and we’ll help you decide if a refinance would benefit you at this point in time.