Despite Rising Rates, It May Be Financially Prudent to Refi

Why homeowners may want to consider a refinance even as rates are rising.

By John Dustman, Senior Vice President, Head of Mortgage Banking, Axos Bank, NMLS# 1392265

This year has ushered in mortgage rate volatility, leading many to speculate when and how much rates will increase throughout 2022. No amount of debate will provide a concrete answer, as mortgage rates will always move up and down with market conditions.

But two things are certain:

1. Even with rates on the rise, they’re currently just above their historic lows.
2. Homeowners can often improve their financial condition through a mortgage refinance.

Homeowners Can Still Reap the Rewards of a Mortgage Refinance

There are many homeowners who can refinance to lower their rate, even with the current market fluctuations. For example, individuals who acquired a property with financing that featured a lower down payment option, such as an FHA loan or a government grant, could refinance into a new conforming loan to secure improved terms.

But refinancing isn’t just about getting the lowest rate. With rates decreasing to new lows during the last two years, it’s been easy to lose sight of benefits available from a refinance, beyond a low-rate mortgage.?

Homeowners need to take a step back and look at the bigger financial picture. They may find that refinancing will improve their cash flow, reduce total interest paid on combined debts, or shorten repayment terms on debts to reduce the effective interest they pay over the life of their loans.

Lenders with a consultative focus can help homeowners see the full picture. Tools like a blended rate calculator can provide powerful illustrations to show why hanging onto the lowest mortgage rate might not be the prudent choice.

Here are examples of how a refinance – even at a slightly higher mortgage rate – can help homeowners get ahead. Many of these options allow borrowers to redesignate funds toward other investments, so they not only improve short-term cash flow but also have the potential to increase future income.?

1. Recapture assets used as down payment for a recent property purchase.

2. Consolidate debts to a reduced blended rate and lower overall monthly loan payments.?

3. Leverage accrued home equity at a low interest rate, creating a path for endless opportunities, including:

• Expanding their real estate portfolio with a down payment on another property.
• Funding a home improvement project, which may result in increased home value.
• Establishing a rainy-day fund for protection from future storms.

4. Remove private mortgage insurance (PMI) to reduce the monthly payment.

5. Reduce monthly expenses to accommodate for months of fluctuating income.?

6. Improve cash flow on an investment property.

Options to reduce monthly expenses and improve cash flow include refinancing to an interest-only, deferred interest, or 30-year fixed rate mortgage. While extending the term may result in more interest paid over the life of the loan, the freed-up funds can be used in a way that makes up for the additional interest paid.

Two Main Takeaways

Mortgage rates will certainly fluctuate in 2022 – we’ve been seeing it happen for the last several weeks. But I anticipate they’ll remain at a level where homeowners can still win with a mortgage refinance. What’s the secret to refinance success?

1. Looking past the goal of getting the lowest historical rate.
2. Working with a knowledgeable lending team that uses a consultative approach – reviewing the borrower’s complete financial picture to help them restructure and optimize.

Interested in refinancing your mortgage? Visit AxosBank.com/Mortgage for a personalized mortgage rate quote or call 888-546-2634 for a mortgage consultation.