You May Want to Refinance Your Mortgage Before 2022 Ends. Here’s Why

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It could be a good bet for homeowners in a specific situation.


Key points

  • Refinance demand has plummeted in the wake of rising mortgage rates.
  • If you need some extra money for a necessary expense, a cash-out refinance could still be a solid bet in the coming weeks.
  • The interest rate on a cash-out refinance will likely be lower than on a home equity personal loan.

When mortgage rates dropped to record lows during the latter part of 2020, many homeowners rushed to refinance their home loans. In fact, there was a point when the demand for refinances was truly overwhelming.

But those days are long gone. Mortgage rates have risen sharply since the start of 2022. As such, refinance demand has shrunk substantially, and understandably so.

In fact, it’s fair to say that in general, right now isn’t a great time to move forward with a refinance. But there’s one specific situation where it does pay to refinance your mortgage before 2022 comes to a close.

When you want to take cash out of your home

Although mortgage rates are up right now, you might snag a lower rate on a refinance than you will for a home equity or personal loan. If you need access to cash, your home might be a good source of it — and a cash-out refinance could be a smart bet.

With a traditional refinance, you borrow the exact amount of money you owe on your mortgage. So if your mortgage balance is $300,000, you’d take out a new $300,000 loan.

With a cash-out refinance, you borrow more than your remaining mortgage balance, and your ability to do so hinges on the equity you have in your home. So if, for example, you owe $300,000 on your mortgage but your home is worth $500,000, you might have a fairly easy time qualifying for a $350,000 cash-out refinance. In that case, you’d get a $350,000 loan, use the first $300,000 to pay off your existing mortgage, and get a check for the remaining $50,000.

More: Our picks for best FHA mortgage lenders

The benefits of a cash-out refinance

The upside of a cash-out refinance is that you can use the money as you please. Many people do a cash-out refinance so they can fix or upgrade their homes, but you don’t have to use your money for anything related to your property. You can use it to start a business or take a vacation of a lifetime if you so desire (though to be clear, that’s probably not a route you want to take).

Meanwhile, right now, home equity levels are still up on a national level. But we don’t know if home values will fall in the new year. That’s why now’s a good time to do a cash-out refinance. If you wait too long, you may not be able to borrow the sum you need.

Plus, while we know what mortgage rates look like right now, we don’t know if they’ll continue to climb. If you do a cash-out refinance now, you might get ahead of even more expensive mortgage rates in 2023.

Is a cash-out refinance right for you?

If you need cash for something important, like replacing your roof or finishing your basement to accommodate your growing family, then it could pay to move forward with a cash-out refinance in the next few weeks. And while you might get stuck with an interest rate you aren’t so thrilled with, it might still be your most affordable option for borrowing money at this point in time.

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