Over the past couple of years, mortgage rates have hit – and stayed at – record lows. Millions of American homeowners took advantage of these market trends to refinance their homes and lock in low interest rates. According to the Consumer Finance Protection Bureau, closed-end loan originations, excluding reverse mortgages, increased by 65.2% in 2020, from 8.3 million to 13.6 million. The refinance boom drove most of this growth. Since rates dipped in 2020, year-over-year increases in mortgage activity have held steady. If it feels like everyone in your life has refinanced in the past couple of years, you’re not imagining things.
Still, many Americans who were eligible to refinance held off, often for good reasons. Refinancing can require significant up-front costs, and it can be a time-intensive process. For professionals working front-line jobs during the most stressful days of the pandemic, working on a mortgage refinance was likely the last item on their to-do list. Additionally, precarious employment and economic uncertainty led many Americans to hold onto their savings rather than spend on refinance closing costs.
But things are changing. It appears that the United States is on the road to normal, and people are beginning to take stock of their financial assets. Those too busy or stressed out to refinance into record-low interest rates in 2020 or 2021 might begin to contemplate making a financial move of their own. Unfortunately, the decision to do so is not as straightforward as it was just a couple of years ago.
According to The New York Times, mortgage refinance rates have risen to levels not seen since the pandemic. As a result, homeowners who are finally in the position to refinance may feel as though they have missed their opportunity. The truth, however, is a bit more optimistic.
Most people think that you should only refinance a home when rates are low. While this can be helpful, and some people do lock in extremely favorable terms, refinancing at any time will prove financially beneficial to the homeowner.
For example: If you’ve paid down a portion of your principal balance before the refinance, your new payment will always be lower. If decreasing your monthly payment isn’t the main goal of your refinance, there are a variety of other levers you can pull to make a strategic decision: refinancing into a shorter loan term will save thousands of dollars in interest, refinancing into a lower rate will save money in the short- and long-term, and opting for something like a cash-out refinance can provide the funds necessary to improve your property’s value.
Talking to a neighbor about their early-2021 refinance might make you feel as though you got the short end of the stick. However, so long as you pay back the cost of the loan before you sell, refinancing at any time will help you save money. As long as you’re ready to make the move, refinancing will always be a smart decision – even if rates are higher than they were a couple of years ago. If you haven’t refinanced in over two years, checking today’s mortgage rates is a great place to begin making your move.