Summary
Even with rising interest rates, it may make sense to refinance your mortgage in at least four different financial scenarios:
1) pay off high-interest debt
2) lock in a fixed rate from an ARM
3) fund your retirement
4) pay for home improvements.
Just like your doctor shouldn’t recommend that everyone smoke cigarettes, an expert in home wealth management should not recommend that everyone refinance their mortgage.
This is especially true now, with mortgage interest rates increasing to levels not seen since 2008. These days, <500k homeowners would save money by refinancing, down from ~15 million in Summer 2021.
Despite this nonsense, there are still some good reasons to access the equity in your home, even at today’s interest rates:
Pay off your higher interest debt
When interest rates go up, so do rates on other debt: credit cards, auto loans, etc. Because debt on home equity is typically the lowest cost debt, it may save you a lot of money to get a HELOC or home equity loan to eliminate your much more expensive debt. In that case, you’ll likely end up with a lower monthly payment and paying much less interest over time.
Switch from an ARM to a fixed rate mortgage
If you have an adjustable-rate mortgage (ARM) that is adjusting based on recent interest rate increases, it may make sense to refinance into a fixed rate mortgage or a new ARM. The fixed rate mortgage would protect you from future increases, although likely with a higher monthly payment. A new ARM may lower or stabilize your monthly payment for at least the next several years, when interest rates may be lower.
Help fund your retirement
In today’s housing market, the old model of selling your home, downsizing, and using the extra equity to help pay for your retirement isn’t working the way it used to. There are some other, lesser-known ways to stay in your home while accessing equity for retirement — either a lump sum cash payment or ongoing income stream — especially if you’re 55 or older.
Pay for a home renovation
You’ll have to run the numbers — and we can help! — but it depends on the cost of the renovation, the value it will add to your home, and the other alternatives like moving or renting. It’s possible the return on investment would justify accessing your home equity even at today’s interest rates.
At House Numbers, we specialize in helping you consider these options. We pride ourselves on enabling homeowners save money, access cash and build wealth. Plus, you can count on us to provide unbiased advice — we’re not a mortgage lender or insurance company!
