Mortgage Rates Are Rising; Should I Refinance?

Your home mortgage is an important investment and might be one of your largest bills every month. Refinancing your mortgage can help lower your monthly payments and help you reach your financial goals sooner when interest rates are low.

With mortgage rates on the rise, determining if refinancing your mortgage is the right choice becomes more difficult. Using a refinance calculator and understanding the terms of your loan can help you decide if now is the right time for you to refinance your mortgage.

Refinancing Your Mortgage

When you refinance your mortgage, you will be taking out a new mortgage to pay off your old mortgage. Refinancing your mortgage allows you to change the type of mortgage you have and the terms of your loan. You may be able to lower your interest rates and monthly mortgage payments by refinancing your mortgage.

Refinancing your mortgage also allows you to switch the type of mortgage you have. You can change from an adjustable rate mortgage to a fixed rate mortgage or vice versa. You can also use refinancing to change the length of your loan. A shorter term can help you pay less interest on your mortgage.

You can even get the money needed to make improvements to your home through a cash-out refinance of your mortgage. This type of refinancing allows homeowners to use the money they’ve already paid toward their mortgage to make home repairs and improvements or pay off other debts they’ve accumulated. It’s an alternative to a home equity loan and is an option when your home has increased in value.

Who Should Refinance?

The interest rates for mortgages are determined by several economic trends, including inflation, employment levels, and the housing market. Mortgage rates aren’t set by the federal reserve like other interest rates, but they tend to travel in the same direction. Mortgage lenders, not chief economists, determine their rates, and they can vary over time. Freddie Mac’s weekly survey shows an average of 2.39% for a 15-year fixed-rate mortgage.

A lower interest rate is the best reason to refinance your mortgage. If current interest rates are lower than the terms of your original mortgage, refinancing can help you receive more favorable interest rates.

Lowering your interest rates reduces your monthly payments and decreases the overall cost of your loan. Refinancing your mortgage may be the right choice if you meet other criteria.

You have an adjustable-rate mortgage

Homeowners with an adjustable-rate mortgage may want to refinance and switch to a fixed-rate mortgage. The interest levels of adjustable-rate mortgages change over time. With the economic problems caused by the COVID-19 pandemic, interest rates are going up. While your adjustable-rate mortgage may have stayed steady in the past, you may notice your rate increasing.

Refinancing to a fixed-rate mortgage locks in your rate, preventing it from going up unexpectedly. Keeping your interest rate lower can help increase your monthly savings. You’ll be able to pay more of the principal amount off faster and owe less money to the lender.

Your credit score has improved

If your credit card debt has gone down or your credit score has improved since you first took out your mortgage, consider refinancing now. Your credit score is used to help determine your interest rate, and a significant improvement in your score can help you attain a lower interest rate. You won’t be seen as being at a high risk of default by lenders.

You plan to stay in your home

Homeowners who aren’t planning to move in the immediate future should consider refinancing. You may want to switch your mortgage term to help lower your monthly payments or pay off your mortgage faster.

You can also use refinancing to tap into your home’s equity to pay for repairs and upgrades to your home. Home prices across the country have increased, and a rise in the value of your home can help you earn favorable refinancing terms.

Reasons Not to Refinance Now

Refinancing isn’t always a good idea. If you took out your mortgage while interest rates were low, you might not get a better deal right now. There are also additional costs associated with refinancing your mortgage to consider. Refinancing can cost between 3-6% of your loan’s principal, which could translate to thousands of dollars.

It also requires you to complete the same actions associated with buying a home:

  • Going through a title search
  • Getting your home appraised
  • Application fees and closing costs

Be prepared for your mortgage refinancing to cost you money upfront. You shouldn’t consider refinancing if you’re planning on moving within a few years. It will take you time to recoup the refinancing costs, and you won’t have the time to benefit from a more favorable mortgage. If you’re not sure refinancing will benefit you, use a refinance calculator to help determine how much you’ll save.

Rising Mortgage Rates

Benefits of Refinancing with a Credit Union

Credit unions offer unique benefits to people who are looking to refinance their mortgage. Unlike banks and financial institutions, credit unions are organizations run by union members and don’t have stockholders to appease. As a result, members have more say in how the organization is structured and how it operates.

Credit unions provide the same services as banks, including mortgage refinancing. Their non-profit status means their success translates into better rates and terms for borrowers. They often have lower interest rates than for-profit banks and financial companies and fewer fees associated with the refinancing process. Even a slightly lower rate can mean thousands in savings over time.

You may be approved more easily for your mortgage refinancing through a credit union. They’re more lenient toward your credit score and will look at your entire financial picture and history to determine your eligibility. Credit unions are an excellent choice for someone with a limited credit history or an average credit score.

Credit unions are also known for their exceptional customer service. The employees are members, too, and are invested in helping you have a positive experience. When you do well, the credit union and other members benefit. They’re more willing to work with you to help you find a loan with terms that meet your needs.

How T&I Credit Union Can Help You

Refinancing your mortgage has the potential to save you tens of thousands of dollars over the life of your loan. Homeowners in Michigan interested in refinancing their mortgage should consider T&I Credit Union.

We’re upfront about our mortgage rates, fees, and closing costs to serve our members better. You can even apply for refinancing online. Contact us at (248) 588-6688 for more information.

About Jeff Jacobs