Interest Rates are Rising—Is it too Late to Refinance?

On the mind of many homeowners is the fact that interest rates are rising. However, since rates have stayed low for several years, it should not be a surprise. But, keep in mind—although rates will increase, it will not be all of the sudden. You should not see a significant increase overnight. Rates will creep up little by little, so you will have a warning. And since you might have quite a bit of equity with home prices skyrocketing, you may consider refinancing and taking cash-out for certain circumstances. In addition, there could be other reasons to refinance now rather than later. Here are some top reasons refinancing may make sense for you.

Remove a Borrower from Your Mortgage

Life circumstances change, and that is true for many things, including buying a home with another borrower or getting married and purchasing a home together. People part ways, but both still own the house. One solution is to sell the property and split the proceeds. The other solution is for one party to buy the other out. In that case, a cash-out refinance could give you the money you need so you can be the only borrower on the loan.

Find a Good Deal

Even though rates are increasing, you might still be able to find a good deal if you shop around. Shop with a credit union can also help because they usually have lower rates. Plus, sometimes, lenders offer incentives like lower costs which make refinancing more appealing. Veteran's Affairs (VA) rates are generally low, so it is always good to see what rate you can qualify for if you are eligible.

Improved Credit

Even though rates could be going up, your credit score may have increased since you originally got your home loan. In that case, it is wise to check out your options. Contact your trusted lender and have them look at your credit and let you know what kind of a rate you could get. You may be surprised.

Eliminate Mortgage Insurance

If you are like many first-time homebuyers, paying a 20% down payment may not be possible. If you are paying less than 20% down, there will be the added expense of a mortgage insurance premium (MIP). That can add $100 or more per month to your payment. If you get rid of MIP, by refinancing, you could potentially save by lowering your monthly payment. 

Buy Down Your Rate

If you want to refinance, but the rate is just a little too high, consider “buying down” the rate. Here is how it works—you prepay some interest, and your lender gives you a lower rate in exchange. However, you will need to run the numbers to see.

Buy a Vacation Home with a Cash-Out Refinance

If having your own family vacation home is a dream, depending upon your equity—getting a cash-out refinance can give you all or some of the funds you need. Plus, the interest will be lower since it is on your primary residence. It would be great to know you have a wonderful home away from home to go relax and spend the much-needed time to reset.

Buy an Investment Property with a Cash-Out Refinance

Purchasing an investment property like a duplex, triplex, or fourplex could be a smart financial move right now. That is because rents are climbing, and renters are looking for an excellent place to live. Reinvesting your equity in this way can make it grow, plus your tenants are helping you pay your mortgage off.

Buy a Second Home with a Cash-Out Refinance

Some borrowers need a second home. Maybe they work quite a ways away from their current residence and need a place during the week. Purchasing a second home could be a solution that makes your life easier and commute less.

A Home Equity Line of Credit (HELOC) Could Be The Answer

Do not forget about home equity lines of credit. A HELOC is a great financial tool that lets you tap into your equity yet keep your current first mortgage. With a HELOC, you only draw out the money you need, so you are not paying interest on the funds you have not taken.

Just because you hear that rates are rising, that does note mean you should discount what you can do with the equity you have in your home or ignore the reasons refinancing may still be the best option depending on the circumstances.