Why Refinancing Still Makes Sense Amid Rising Rates

Why Refinancing Still Makes Sense Amid Rising Rates

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Its true – rates are rising. Learn about why you should refinance your mortgage with interest rates going up. Strike while the iron is hot – refi with Newrez today!

Mortgage Interest Rates Are Still Considered Low

The 30-year fixed-rate recently hit a one-year high. Reasons for the increase in mortgage rates include an improving economy and government stimulus spending. A recent report from Freddie Mac indicated that despite the rising rates mortgage loan activity - including refinancing - remains high. Even with the increase, rates remain near historic lows; therefore, many people are locking in today’s rates to remain ahead of further upward volatility.


Why You Should Refinance Your Mortgage

Refinancing while rates are still below historic norms would likely lower your mortgage rate and thereby reduce your monthly mortgage payment. Related options include changing your loan type and term or going from an ARM to fixed payments since doing any of these could potentially put thousands of dollars in your pocket. Additionally, a refinance could shorten the term of your mortgage and/or allow you to pay it off sooner. Another positive aspect of refinancing is potentially eliminating PMI (private mortgage insurance.) PMI is typically terminated when a mortgage balance reaches 78% of the original purchase, provided the loan is in good standing. This is often accomplished by refinancing and once eliminated you will be able to pocket the extra hundreds of dollars each month. You can find additional information on PMI here.


Mortgage Interest Rates

Although they have begun to rise in recent months, average rates across all loan types remain historically low. If you’re in need of extra cash for any reason and considering refinancing an existing mortgage loan, the timing is right to check out refinancing rates. Based on mortgage rate history, it’s likely that you still haven’t “missed the boat.” Consider that in 2000 the average mortgage rate was 8.05%, and in October 1981 the rate was an astounding 18.63%! Of course, it’s not possible to predict future mortgage rates and there have been decades where the 30-year fixed rate remained relatively stable. However, with mortgage rates recently hitting a 52-week high, many homeowners are deciding that it’s smarter to refinance now rather than waiting.


Cash-out Refinance to Consolidate Debt

Over time your home builds value known as equity. A cash-out refinance is a way to access that equity to pay off higher-interest debt. In this cash-generating scenario you refinance your existing mortgage into a new one for a larger amount and pocket the difference, less any closing costs. Keep in mind that with this option you will be taking on a new loan with new terms which could extend the length of your mortgage. However, the flexibility of a cash-out refinance’s lump sum lets you choose how you want to utilize your money. Recently, Warren Buffet was asked what the first thing people should do when coming into extra cash. He responded by saying that paying off high-interest debt should always be your first move.


Home Improvements

Making home improvements are among the top options chosen by people that find themselves with extra cash because of refinancing. Home renovations can not only add functionality but also increase the value of your home. Home improvements also present an opportunity to improve the energy efficiency of your home through better insulation. Adding space, security, and curb appeal will not only add value and improve the overall appearance, but also increase the comfort of your home. That’s an add-on that can’t be measured in dollars.


Improve Retirement Savings

Even if you began saving late or have yet to begin, it’s not too late to start. The extra money generated from refinancing is a great way to help you do that. One idea is to contribute a higher percentage of pre-tax money to your 401K with some or all the extra money that you can potentially pocket each month. Make sure to contribute at least enough to hit whatever percentage that your employer matches. That would be an extra bonus on top of the additional money you would be saving. Those who are 50 and older are also eligible for “catch-up” contributions to their 401K and IRA. Clearly, the thousands of potential dollars generated through a refinance can also pay dividends towards a more secure retirement.


In summation, many people use the extra cash generated from a “refi” to pay off high-interest debt, make home improvements, or focus on retirement. Examining your refinancing options is a smart move since locking in today’s current rate could potentially save you thousands of dollars each year in the future.



Strike while the iron is hotApply for a Refinance today!