Reasons to Refinance When Rates are Rising
Your mortgage bill is likely the largest payment in your monthly budget. Clients refinance their mortgage when interest rates drop in order to get the lowest monthly payment possible, and this makes sense if their home mortgage is their only debt. But what about when interest rates have risen slightly? Is there a reason to refinance then?
If a home mortgage is the only debt you have, then only refinancing when interest rates are lower makes sense. But if you have other debt that carries a higher interest rate, like credit cards, student loans, or car payments, then it may make sense to do a cash out refinance. This allows you to receive cash when you refinance that you can use to immediately pay off other debt. While your mortgage payment may become higher, your total monthly cash outlay would be lower because you no longer have the other monthly payments.
I recently helped a client refinance his mortgage from around 3% to 3.75%. Why would someone refinance into a higher interest rate? Unfortunately, my client had accumulated a decent amount of credit card debt that had an interest rate of 19%. I ran the numbers for him and not only would his total monthly payments be lower refinancing, but his total cash outflow over the life of his mortgage would be lower.
Here to Help You
My team and I are never going to suggest refinancing if it doesn't make financial sense for you. But unlike other lenders, we will take a holistic approach to your financial situation and try to guide you in a direction that puts you in the best position to achieve your financial goals. Feel free to reach out if you have any questions related to mortgages, budgeting or debt. I am here to help.