Routing # 256078446
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Should You Refinance When Interest Rates Are High?
What you'll learn: Whether or not refinancing is the right option for you when rates are high.
EXPECTED READ TIME: 3 MINUTES
November 22, 2023
Is it better to wait to refinance until rates drop again? Is there any benefit to refinancing while rates are still high?
Many homeowners will refinance their mortgage at one point or another during the repayment period. The whole point of refinancing is to change the terms of your existing debt in your favor. In most cases, it only makes sense to refinance a home loan if you’re able to secure a lower refinance mortgage rate. However, you’ve heard it before, there is no one-size-fits-all when it comes to home financing.
When interest rates were trending low, the marketplace experienced a surge of borrowers refinancing. But in today’s high-interest rate climate, the only way to know if a refinance makes sense for you is to take every detail of your unique situation into account.
Are current rates lower than the one you currently have?
Recent interest rates have been historically high, but there's always a chance you can find a lender who can offer favorable terms depending on your situation. Generally, a 1% rate reduction helps many homeowners save over the life of their loan. There are many factors to consider depending on your unique situation.
Do you plan to keep your mortgage?
When you refinance, same as when you initially purchased your home, you will have to pay for the closing costs. For those who are planning to sell their home in the next few years, it may be smarter to hold off on a refinance altogether. That’s because the monthly savings you acquire for the remainder of your mortgage may not be more than the closing costs you have to pay for a refinance. In the end, you’ll barely break even or actually come out behind.
Can you refinance a fixed-rate mortgage to a shorter loan term?
If you can afford to refinance your 20-year mortgage into a 15-year mortgage, the shorter term will help you reduce the total amount of interest you’ll have to pay. Especially if you’re able to secure a lower interest rate. However, if you have 20 years left on your current mortgage, refinancing into a new 30-year loan will have you on the hook for longer and won’t save you money in the long run.
When does refinancing to a higher-rate mortgage make sense?
For most borrowers, the only time refinancing to a new mortgage with a higher interest rate makes sense is if you’re planning to switch from an adjustable-rate mortgage (ARM) to a fixed-rate loan.
ARMs and fixed-rate loans work differently. If you have an adjustable-rate mortgage, you may have qualified for a lower introductory rate — but that rate isn’t yours to keep for the life of the loan. After the set period of time (three, five, or even seven years), your rate may begin fluctuating with the market trends. Your current rate and payment may be lower than what you could obtain with a refinance, but it’s entirely possible that your rate will increase over time. You may have already experienced this in the past year as rates were on the rise.
On the other hand, a fixed-rate mortgage ensures your interest costs don’t change at all throughout the entire time you’re paying it back. Depending on your financial health and credit score, refinancing to a fixed rate may help you secure a lower rate that saves you money in the long run. And at the very least, you’ll know there won’t be any surprise increases. You will understand the total interest expenses up front and exactly how much your loan will cost each month.
It may also be worth considering a cash-out refinance if you have other high-interest debt to pay off. Your monthly mortgage payment may increase, but you can use the cash to reduce your overall high interest debt. Of course, this may not be the case for everyone, so it’s important to consult with your lender and pay close attention to the numbers.
Should you refinance your home loan?
At the end of the day, a good refinance should benefit the borrower. Refinancing when interest rates are high is generally not advisable and should be approached with caution, as it may not result in significant savings and could potentially cost you more in the long run. Plus, there are other options that can help lower your mortgage payment without needing to refinance.
How to lower your mortgage payment without refinancing:
- If you meet the requirements, you may be able to cancel your mortgage insurance.
- Shop for lower homeowners insurance rates.
- Appeal your tax assessment if you feel it is valued too high (if it’s in escrow, this will lower your overall payment).
- Discuss options with your lender, as they may have resources to help.
Your situation is unique, so it’s always best to know all of your options before deciding.
SIMILAR ARTICLES
When Rates Rise - Is an ARM Good?
You can still get a low rate with an adjustable-rate mortgage even when rates rise. An adjustable-rate mortgage can give you buying power you need. Read on.
Refinancing and Your Credit
How does refinancing affect your credit? Can you qualify with bad credit? Here's everything you need to know.
Your Top Refinancing Questions Answered
Are you thinking about refinancing? See the answers to some of the most common questions borrowers ask when considering a refi.
Different Types of Mortgage Refinance Loans
Discover the best refinance options including refinancing from FHA to conventional, VA streamline refi's, refinancing home equity, 1st & 2nd into one loan.
Home Buying Steps
Mortgage Products
Disclosures
1Conventional Loans
Except for holidays, rates are updated Monday through Friday at 10:15am EST. The advertised rates and points are subject to change. The information provided is based on 1.5 discount point, which equals 1.5 percent of the loan amount, and assumes the purpose of the loan is to purchase a property with a 30-year, conforming, fixed-rate loan. Loan amount of $400,000; loan-to-value ratio of 75%; credit score of 760; and DTI of 18% or less. The property is an existing single-family home and will be used as a primary residence. The advertised rates are based on certain assumptions and loan scenarios, and the rate you may receive will depend on your individual circumstances, including your credit history, loan amount, down payment, and our internal credit criteria. Other rates, points, and terms may be available. All loans are subject to credit and property approval.
Rates quoted require a loan origination fee of 1%; not to exceed $1,995. Speak to a PenFed Mortgage Loan Officer for additional details.
2FHA Loans
Except for holidays, rates are updated Monday through Friday at 10:15am EST. The advertised rates and points are subject to change. The information provided is based on 1.25 discount point, which equals 1.25 percent of the loan amount, and assumes the purpose of the loan is to purchase a property with a 30-year, conforming, fixed-rate loan. Loan amount of $400,000; loan-to-value ratio of 96.5%; credit score of 760; and DTI of 18% or less. The property is an existing single-family home and will be used as a primary residence. The advertised rates are based on certain assumptions and loan scenarios, and the rate you may receive will depend on your individual circumstances, including your credit history, loan amount, down payment, and our internal credit criteria. Other rates, points, and terms may be available. All loans are subject to credit and property approval.
Rates quoted require a loan origination fee of 1%; not to exceed $1,995. Speak to a PenFed Mortgage Loan Officer for additional details.
3VA Loans
Except for holidays, rates are updated Monday through Friday at 10:15am EST. The advertised rates and points are subject to change. The information provided is based on 1.375 discount point, which equals 1.375 percent of the loan amount, and assumes the purpose of the loan is to purchase a property with a 30-year, conforming, fixed-rate loan. Loan amount of $450,000; loan-to-value ratio of 95%; credit score of 760; and DTI of 18% or less. The property is an existing single-family home and will be used as a primary residence. The advertised rates are based on certain assumptions and loan scenarios, and the rate you may receive will depend on your individual circumstances, including your credit history, loan amount, down payment, and our internal credit criteria. Other rates, points, and terms may be available. All loans are subject to credit and property approval.
Rates quoted require a loan origination fee of $995.
4Jumbo Loans
Except for holidays, rates are updated Monday through Friday at 10:15am EST. The advertised rates and points are subject to change. The information provided is based on 0.75 discount point, which equals 0.75 percent of the loan amount, and assumes the purpose of the loan is to purchase a property with a 30-year, non-conforming, fixed-rate loan. Loan amount of $1,009,000; loan-to-value ratio of 70%; credit score of 760; and DTI of 18% or less. The property is an existing single-family home and will be used as a primary residence. The advertised rates are based on certain assumptions and loan scenarios, and the rate you may receive will depend on your individual circumstances, including your credit history, loan amount, down payment, and our internal credit criteria. Other rates, points, and terms may be available. All loans are subject to credit and property approval.
Rates quoted require a loan origination fee of 1%; not to exceed $1,995. Speak to a PenFed Mortgage Loan Officer for additional details.
Fixed Rate Advance Lock-In You may lock in an Annual Percentage Rate for Advances during the Advance Period. During your Advance Period, you may choose to have three separate Fixed Rate Advances locked in at any one time, with a maximum of two new Fixed Rate Advances per calendar year. Each Fixed Rate Advance must equal or exceed Ten Thousand Dollars ($10,000.00) and you may not request a Fixed Rate Advance that would cause the amount you owe to exceed your Credit Limit. The only term option for your Fixed Rate Advance is 240 months (“Fixed Rate Advance Term”). However, the term of your Fixed Rate Advance cannot exceed your Repayment Period.
Routing #256078446
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