With record mortgage rates, does it still make sense to refinance?

With record mortgage rates, does it still make sense to refinance?

Mortgages are more expensive than they have been since 2001, with average rates for 30-year fixed mortgages now above 7%. In this market, it makes little sense to refinance your mortgage.

There are, however, a number of specific circumstances in which refinancing may still make sense. You can refinance to free up some of your principal to pay off other debts or to extend the term of your mortgage.

  • Mortgages are more expensive than they have been since 2001, with average rates for 30-year fixed mortgages now above 7%.
  • The mortgage refinance market is down because very few people have a mortgage with a higher interest rate than the current one.
  • There are other reasons why you might refinance your home. An interest rate of 7% is relatively high for a mortgage, but still lower compared to other forms of credit.

High interest rates discourage refinancing

First, the bad news. The price of a mortgage is higher today than at any time since 2001. Specifically, during the week ending October 26, the average rate for a 30-year fixed mortgage reached 7.16%, according to the Mortgage Banker’s Association. This is the tenth week in a row that rates have risen.

The high cost of mortgages is causing a general slowdown in the mortgage market and is affecting both new mortgages and refinancing. New mortgages are down 42% from the same week last year, and refinancing is down 86%. This is not surprising, because the most common reason people refinance their homes is to benefit from a lower interest rate, and very few people pay more than the current rate.

In fact, according to Black Knight’s Mortgage Monitor, there are currently only 133,000 US homeowners who could get a lower interest rate through refinancing. This is the lowest number since 2000 and will likely only include people who got their mortgage before 2008.

Why Refinancing Can Still Make Sense

However, there are other reasons why you might consider refinancing your home. Paying 7% interest might be a record high for a mortgage, but it’s still relatively low compared to other forms of credit. Many car loans charge 8% interest or more, for example, and the average interest rate on personal loans is over 10% according to the Federal Reserve Bank of St. Louis. The average credit card interest rate was recently quoted at 16.27% by the Federal Reserve..

If you have high interest debts like these, it could be an option to refinance your mortgage and use it as a lower cost debt consolidation loan to pay off those obligations. Likewise, if you need money to improve your home, you may be able to borrow it through refinancing at a significantly lower rate than a personal loan.

A popular way to do this is with a cash refinance, which converts the equity in your home into cash when you take out a new mortgage for more than your previous mortgage balance, and the difference is paid to you in cash. species.

A second reason to refinance, even with high interest rates, is to extend your mortgage. If you’re already 20 years old with a 30-year mortgage, for example, you can extend your mortgage to lower your monthly payments. It also frees up cash without diminishing your principal, as long as you are willing to accept a potentially higher interest rate on the loan and repay it over a longer period.

Just be sure to shop around, as refinance deals can vary widely from lender to lender, and check out our list of the best mortgage refinance companies.

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