Is It Actually Too Late To Refinance Your Home? Here's What Experts Say

According to many financial experts, it may already be too late for most people who were hoping to refinance their home this year. Rising interest rates and falling home prices have removed many of the advantages of refinancing a home loan — like saving money on your monthly mortgage payment or pulling some of your home's equity for a major purchase or renovation — causing some people to reconsider the value a refinance can provide.

However, there are still some people who could benefit greatly from refinancing their mortgage, according to experts. We talked to a finance pro to find out what you need to know if you are still considering a home refinance.

There are many reasons people refinance their mortgage, according to Melissa Cohn, regional vice president at William Raveis Mortgage. "It is not always just about a lower rate. For example, if you currently have an adjustable rate and it is about to reset, then now may still be a great time to refinance," she explains.

Also, if you are looking to consolidate debt; consolidate a home equity line of credit; or pull out equity for renovations, investments, or any other purpose, Cohn says those needs may supersede the changing rates.

Lastly, if you're locked into an interest-only loan (where you only make payments on the interest portion of your loan and not the principal) that is about to age out of the interest-only period, Cohn says you'll want to refinance into a fixed or adjustable-rate mortgage before that payment hike hits.

Cohn says there are a few additional things you should think about when trying to determine whether you should hold off on changing the terms of your mortgage. "First of all, borrowers should consider how long they expect to remain in their home before they consider refinancing and paying the closing costs," she says.

If you're planning on being in your home for the long haul, you likely have time to make up any costs or fees you incur by refinancing right now. However, if you're planning on moving in the next year or two, refinancing when rates are high and values are coming down may not make much financial sense.

If you absolutely have to refinance right now when rates are less than favorable, Cohn says there's a few things you can do to make things easier on yourself (and your wallet). "If you are refinancing now and looking to keep the monthly payment down, then you should consider an adjustable-rate loan (ARM)," she says. "It's better to take an ARM than to pay points to buy down a fixed rate that will likely come back down in the next year or two."

Adjustable-rate and interest-only loans generally come with lower pricing due to the additional risks to the borrower. These types of mortgages start off with lower payments in the beginning and then increase over time. With rates rising right now, that means your payment could go up significantly when your initial pricing program ends — but Cohn says adjustable-rate and interest-only loans may be the best way to keep your payments down in the interim. Then, once interest rates settle back down (which Cohn believes they will), you can refinance to a fixed-rate mortgage.

After the subprime mortgage crash of the early 2000s, many people are understandably skeptical when they hear people using an adjustable-rate mortgage to offset their monthly mortgage cost, but Cohn says it is a perfectly reasonable option for some people. "Don't be afraid of an adjustable-rate mortgage. Interest rates have nearly doubled in some cases this year," she says, adding that the Fed will likely continue to push rates up until the economy cools a bit and then slowly lower them once more.

Unlike with the subprime crash, values shouldn't plummet significantly. That means many borrowers will still have enough equity in their home to refinance again once rates begin to fall and lock into a more secure fixed-rate mortgage.

While it's easy to make predictions about what will happen next with the economy, it's hard to offer blanket advice on what you should do with your home loan. Your best bet is always going to be talking to your lender or a local broker to find out whether a refinance is the right option in your specific case. For those who took advantage of those record-low interest rates in 2020, there may not be any real benefit to refinancing your home right now. However, if you're itching to renovate your kitchen or bathroom and want to dip into your home's equity while it's still at an unprecedented high, now may be a perfect time to refinance.