Reasons To Refinance When Rates Are Rising
Interest rates have enjoyed record lows during the last few years allowing many people to refinance and enjoy lower mortgage payments. Now, interest rates are moving in the other direction.
Why would anyone refinance when rates are going up? With cash-out refinancing, you refinance your mortgage for more than you owe and keep the difference.
1. Pay off home equity credit lines. Most HELOC loans have variable rates that go up when the Federal Reserve raises short term interest rates. Recently, the Federal Reserve announced its12th consecutive rate increase and they sent out a strong message they will continue the short term interest rate increase. Using a refinance to pay off a HELOC not only will lower your existing HELOC interest rate, but you can stop worrying about the Fed for your second mortgage at least.
2. Consolidate your mortgages. Unless you put 20% or more down on your home, there is a good chance you did a combination (or piggyback second mortgage) loan to avoid PMI (Private Mortgage Insurance) which is required on loans with less than a 20% down payment. Second mortgages typically carry higher interest rates and a cash-out refinance may allow you to consolidate these loans into one lower monthly payment.
3. Secure A Fixed Rate Mortgage. Rates for adjustable mortgages, which are sensitive to Fed moves, have been rising faster than fixed rate mortgages. Borrowers with loans close to a rate adjustment are facing an increase in monthly payments and the possibility of even higher rates down the road. Many borrowers who plan to stay in their homes are fending off the higher rates and potential future increases by refinancing into fixed rate mortgages.
4. Improve Your Home. Home Equity Lines of Credit and fixed rate second mortgage rates have been rising. A cash-out refinance can prove to be a cheaper way to finance your home improvement, especially as the cost of the improvement increases. Properties refinanced in 2016-2017 are seeing some appreciation since the original loan was taken out. Improvements made after the refinance may lead to even greater increases.
While many people will no longer be interested in refinancing for a lower rate, there are many reasons to consider refinancing even as interest rates increase. If you have an existing second mortgage, need cash to consolidate credit card debt, or want to do some home improvements, refinancing your current home mortgage may be the best financial move for you. For a free, no-obligation mortgage analysis, click here to speak with a licensed mortgage banker.